Digital Transformation: the Final Chapter an Organizational Roadmap for Digitally- Enabled Businesses 2

Digital Transformation: The Final Chapter An Organizational Roadmap for Digitally- Enabled Businesses 2

Digital Transformation: The Journey

Over the past five years, traditional organizations have made Methodology extensive investments in new digital resources and capabilities such as Chief Digital Officers, data analytics, tech and platforms Russell Reynolds Associates spent the and innovation labs. Our research suggests that most of these past 18 months interviewing 50 digital companies are now trying to figure out how to align these business leaders from both B2B and capabilities with the core of their businesses and drive an B2C organizations and surveying 1,500+ integrated approach to end-to-end transformation. As evidenced digitally savvy executives about the by recent headlines (e.g., high profile succession announcements future of digital transformation and best ranging from Ford and J. Crew to Uber, and same day acquisition practices in organizational alignment and announcements from Walmart and Amazon), this is a topic of culture change. This feedback, combined immediate relevance in boardrooms today. As more and more with lessons learned from the more companies join the race to become truly digitally enabled, we’ve than 1,000 digital searches and advisory entered a new phase of digital transformation, an era we call The projects we’ve conducted over the last Final Chapter. This paper explores our research and defines a five years shaped our view on Digital roadmap to this future state organization. Transformation: The Final Chapter.

Accelerated disruption across all industries Traditional transformers and digital disruptors are now competing head- to-head. New hybrid models, enabled by a centralized digital platform and a customer- centric approach, merge physical and digital Operational shis driven by a businesses to create seamless, connected operations. Though their early eﬀorts focused focus on customers and data on scaered innovation initiatives, these organizations are ﬁnding that a reworking of traditional org structures has to be the focus of enterprise-wide change. While progressive The creation of centralized traditional companies are implementing digital operating platform strategies to achieve end-to-end groups transformations, it is clear that there is not a singular path to success. There are four factors driving the development of these strategies. Evolving corporate culture

How should your organization be thinking about these factors as you embark on the next phase of your journey? 3

Step One: Press the Accelerator The pace of digital disruption is picking up significantly across all industries. Those industries that were laggards in the early days of transformation are no longer immune.

OBSERVED AND ANTICIPATED LEVELS OF DISRUPTION BY SECTOR: % of executives experiencing or expecting significant digital disruption

81% Disruption (to-date) Disruption (next 12 months) 76% 77% 74% 73% 72%

Accelerated disruption across 65% all industries 63% Traditional transformers and digital 62% disruptors are now competing head- to-head. New hybrid models, enabled by a centralized digital platform and a customer- 56% 55% centric approach, merge physical and digital Operational shis driven by a businesses to create seamless, connected focus on customers and data operations. Though their early efforts focused 51% on scaered innovation initiatives, these organizations are finding that a reworking of traditional org structures has to be the focus of enterprise-wide change. While progressive The creation of centralized traditional companies are implementing digital operating platform strategies to achieve end-to-end groups transformations, it is clear that there is not a singular path to success. There Technology Consumer Financial Healthcare Non-Profit Industrial are four factors driving the development of Services these strategies. Evolving corporate culture By contrast, in 2014 38% of industrial companies and 59% of technology companies How should your organization be thinking about these were anticipating similar levels of disruption. factors as you embark on the next phase of your journey?

Sources: RRA 2014 and 2017 Digital Pulse. 4

Step Two: Reimagine the Business

As companies begin to reimagine their businesses, they must also address key organizational capabilities and skills that will be necessary for transformation.

Industry subset Moving from To Key skill gaps

E-commerce platform Omni-channel, Retail Big box retail integration, supply chain, personalization predictive analytics

Ride sharing, self- Software engineering, mobility, Automotive SUVs driving cars AI

Sensors, software, data analytics, Industrial Equipment IOT, connected devices cloud services

Schools and text Online education, Education Digital platforms, AI, mobile books adaptive learning

Hardware and SaaS, cloud solutions, Product, engineering, new go-to- Technology software AI market capabilities

FinTech, mobile, block Mobile platforms, cyber security, Banking Branches chain algorithmic investing and trading

Personalized medicine, Genomics, data analytics, Healthcare Drugs connected care wearables, connected devices

Personal relationships Data analytics, ecommerce, CPG Big brands with consumers supply chain 5

Step Three: Remap the Organization

End-to-end transformation demands operational alignment that maps to the customer journey. Functions that have never directly partnered must now work together.

From top-down decision making To collaboration with data-driven insight

Partners Marketing AI Operations Ventures

CEO & HR Board

Sales Technology Vendors Product Finance

The realignment of the organizational structure demands new capabilities within traditional functions.

Supply Chain/ Product Marketing Technology Operations

• Product management • Customer acquisition/ • Mobile/web apps • Digital supply chain • UI/UX retention • Soware engineering • Ecommerce • Mobile • Mobile/social • DevOps • Tech and platforms • Digital asset • Data & analytics • Digital • Predictive analytics management • User insights • Cloud/open source • Customer analytics • Omnichannel • Cyber • Omnichannel • Content marketing • Data integration

New Capabilities Required • Agile development • Microservices • Ecosystem collaboration

• Data driven • Quantitative • Agile • Data driven • Strategic • ROI driven • Resourceful • Reengineering mindset • Able to work a matrix • Test and learn • User centric • Customer centric • Design driven mindset • Business oriented • Transformational • Transformational • Transformational • Transformational Key Competencies 6

Step Four: Design an Operating Platform

Operating platform groups are at the center of transformation; driving alignment and collaboration.

S & SYSTEM PARTN ECO ERS

ESS UNITS & BR SINTEMS & PA AN USYS RTN DS ECOB ERS FUNCTIONS S UNITS & INES BRMarketingA UOperationsS ND B & SalesS FUNCTIONS Marketing Operations 6 & Sales Supply PLATFORM HR Chain 6 GROUP Supply PLATFORM HR Chain GROUP

Tech/Product Finance

The precise composition and reporting structure of the operating platform group varies from company to company but typically reports into the C-suite, with at least one element reporting into the CEO.6 Digital Transformation Ecosystem Program Digital Strategy Data Platform Innovation, Labs & Development Management & Product Roadmap Analytics Technologies New Ventures and6 Partnerships DigitalTrue Transformation change agent DigitalWorking Strategy with the DrivesData real-time DevelopsPlatform the Innovation,Catalyst and Labs & OrganizesEcosystem ecosystem workingProgram with the & ProductCEO and Roadmap broader analyticsAnalytics capabilities end-to-endTechnologies challengerNew Ventures to current withDevelopment partners, CEOManagement and broader team, determines and upgrades technology platform business incubating andvendors, Partnerships suppliers Trueteam, change manages agent Workingend-to-end with the digital Drivesunderlying real-time data Developsand customer- the facingCatalyst new business and models,Organizes and customers ecosystem for workingend-to-end with the CEOstrategy and broader and analyticsarchitecture capabilities to end-to-endapplications to challengerproducts/ to servicescurrent withinnovation, partners, product/ CEOtransformation and broader and team,product determines portfolio andproduce upgrades impactful technologyenable the platform businessand platforms. incubating vendors,service suppliers build and team,re-engineering. manages end-to-endroadmap. digital underlyingbusiness data use cases. andorganization customer- facing to new business models, andtalent customers acquisition for via end-to-end strategy and architecture to applicationscompete asto a truly products/ services innovation,digital technology product/ transformation and product portfolio produce impactful enablesoware-enabled the and platforms. serviceand platformbuild and

re-engineering.Responsibilities roadmap. business use cases. organizationbusiness. to talentintegration. acquisition via compete as a truly digital technology • Business acumen • Business strategy • Solid business soware-enabled• Mobile/Web • Venture backgroundand• platform Business understanding applications development and Responsibilities • Technology • Digital strategy business. • Agile product and integration. enablement • Digital asset • Use case deﬁnition • DevOps technology partnerships • Business• Digital acumen • Businessmanagement strategy • Solid• Analytics business group • Mobile/Web• Soware • Venturedevelopment background • Business• Ecosystem • Technologytransformation • Digital• Product strategy roadmap/ understandingleadership applicationsengineering • Agile• Business product acumen and developmentdevelopment and enablement• Data/analytics • Digitalmanagement asset • Use• Analytics case deﬁnition platforms• DevOps• Scalable technology• Deep knowledge of partnerships• API integration • Digital• Business process management• Technology • Analytics• Predictive group capability • Sowareinfrastructure developmentnew technologies • Ecosystem• Partner/vendor development transformationre-engineering • Productenablement roadmap/ leadership• Data architecture engineering• Ability to interface• Business• Rapid teamacumen building management • Data/analytics• Operational management• Customer • Analyticsand topology platforms • Scalablewith legacy • Deep• Business knowledge scaling of • API• Deep integration knowledge of systems • Businessimprovement process • Technologyexperience • Predictive• Third-party capability analytics infrastructure new• Back technologies integration • Partner/vendornew technologies re-engineering• Stakeholder and orgenablement • UX • Datacollaboration architecture • Ability• UI/UX to interface • Rapidwith team mothership building management

• Skill sets & capabilities Operationalalignment • Customer and topology with• Product/operations legacy • Business scaling • Deep knowledge of systems improvement experience • Third-party analytics integration • Back integration new technologies • Stakeholder and org • UX collaboration • UI/UX with mothership

Skill sets & capabilities alignment • Product/operations integration 7

Step Four: Design an Operating Platform Step Five: Drive Culture Change

Operating platform groups are at the center of transformation; Unevolved corporate cultures are significant barriers to transformation. driving alignment and collaboration. New objectives, technologies, processes and talent can’t thrive in an environment that isn’t ready for a new pace of change. S & SYSTEM PARTN ECO ERS

ESS UNITS & BR SIN AN BU DS Are culture carriers and new talent FUNCTIONS Marketing integrated? Operations & Sales

Focus on the 6 development of Supply PLATFORM HR agile processes and Chain GROUP Does your culture embrace risk-taking and failure? cross-functional collaboration

Tech/Product Finance

Does your culture support diversity of thought?

Does your plan for future CEO and board Focus on building 6 leadership contain leaders who will an inclusive Digital Transformation Ecosystem uphold progress and continue to drive Program Digital Strategy Data Platform Innovation, Labs & Development culture Management & Product Roadmap Analytics Technologies New Ventures and Partnerships change? True change agent Working with the Drives real-time Develops the Catalyst and Organizes ecosystem working with the CEO and broader analytics capabilities end-to-end challenger to current with partners, CEO and broader team, determines and upgrades technology platform business incubating vendors, suppliers team, manages end-to-end digital underlying data and customer- facing new business models, and customers for end-to-end strategy and architecture to applications to products/ services innovation, product/ transformation and product portfolio produce impactful enable the and platforms. service build and Does your board provide diverse re-engineering. roadmap. business use cases. organization to talent acquisition via perspectives on governance? compete as a truly digital technology soware-enabled and platform

Responsibilities business. integration.

• Business acumen • Business strategy • Solid business • Mobile/Web • Venture background • Business • Technology • Digital strategy understanding applications • Agile product and development and Focus on succession enablement • Digital asset • Use case deﬁnition • DevOps technology partnerships Are your teams, up and down the development • Ecosystem plans that align • Digital management • Analytics group • Soware organization, empowered and enabled transformation • Product roadmap/ leadership engineering • Business acumen development with your • Data/analytics management • Analytics platforms • Scalable • Deep knowledge of • API integration to make decisions? • Business process • Technology • Predictive capability infrastructure new technologies • Partner/vendor transformation re-engineering enablement • Data architecture • Ability to interface • Rapid team building management strategies • Operational • Customer and topology with legacy • Business scaling • Deep knowledge of systems improvement experience • Third-party analytics • Back integration new technologies • Stakeholder and org • UX collaboration • UI/UX with mothership

Skill sets & capabilities alignment • Product/operations integration Do you leverage data analytics and AI to improve eﬃciency? 8

Step Six: Activate the Boardroom

The need for board involvement is increasingly urgent. Commitment and engagement are key to governance – with a long-term view to business model evolution and succession planning.

Talent Vision and management strategy

CEO Risk succession management Key planning responsibility: commitment

Capital Organization allocation and culture 9

AUTHORS WOLFGANG BAURIEDEL is a member of the firm’s TUCK RICKARDS co-leads Russell Reynolds Associates’ Technology Sector and Digital Transformation Practice. Digital Transformation Practice and is a member of the Wolfgang is located in Boston. Technology Sector. Tuck divides his time between San Francisco and Boston. RHYS GROSSMAN co-leads Russell Reynolds Associates’ Digital Transformation and Consumer Digital Media NORA VISKIN leads knowledge for the firm’s Digital Practice. He is located in London. Transformation and Diversity & Inclusion Practices. She is located in Boston.

Russell Reynolds Associates is a global leader in assessment, executive search and succession planning for boards of directors, chief executive officers and key roles within the C-suite. With more than 400 consultants in 47 offices around the world, we work closely with public, private and nonprofit organizations across all industries and regions. We help our clients build teams of transformational leaders who can meet today’s challenges and anticipate the digital, economic, environmental and political trends that are reshaping the global business environment. Find out more at www.russellreynolds.com. Follow us on Twitter:@RRAonLeadership

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