CEOs Must Commit to Digital Now

Most CEOs expect positive business conditions and accelerating technology innovation in 2015, but are they ready for the impact of digital?

2015 is a good year for business as CEOs continue to focus on growth rather than cost cutting. According to Gartner’s recent survey of CEOs and business leaders, a third of CEOs expect to attribute more than half their revenues to digital within 5 years. However there is concern that some leaders only have a relatively superficial understanding of how digital change will enable high levels of revenue.

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“Our concern is that business leaders have not fully understood the massive implications of a digital business world. Too many still see the opportunity only in terms of better marketing and selling online and through social and mobile,” said Mark Raskino, vice president and Gartner Fellow. “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 from now in those organizations that have not taken advantage of good business conditions to invest in a deep digital future.”

CEOs must commit to making digital part of the DNA of their firms, rather than seeing it only as a tactical marketing overlay. The music industry, for example, is already seeing a second wave of change towards streaming subscription services away from individual song downloads, demonstrating that digital disruption is not a one-time thing. The car industry is trying to work out how far, and how fast, autonomous driving will advance and what digital services revenue models might look like. The hospitality and passenger transport industries are reeling from the pace at which AirBnB and Uber are taking consumer mindshare and wallet share. Yet despite these obvious examples many other industries still appear to be complacent about the suddenness and magnitude of changes that digital business will bring.

CEOs should assume that business model change will be forced by new digital entrants or an adjacent competitor within the next two years. However, the survey results show that only a third of CEOs are changing their business model, or will do so in the next two to three years.

“This was a surprise result. We had expected this figure to be well over 50 percent, given the degree of digital disruption going on in banking, automotive, retail, services and now even heavy industry,” Mr. Raskino said. “Perhaps some industries haven’t yet woken up to the reality of the Internet of Things (IoT), but once a product is connected to the Internet, some business model change is almost bound to follow.”

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The survey showed that growth was once again the top priority for CEOs in 2015, while the second most important category of business priority for the next two years is technology related. “This is the highest position we have ever seen for technology in this survey, and it’s our firm belief that CEOs are more focused on this area than at any time since 1999,” said Mr. Raskino.

The standout finding from this year’s survey was the meteoric rise of the IoT, a term that barely garnered any recognition in previous years.

While there is high interest in IoT, the practical business strategy implications and product idea examples are often superficial and scattered. So CEOs’ initial interest might wane within a year or two. CIOs should work swiftly to bring IoT implications to life and create the storylines for their own industry sector.

Gartner clients can read more in the report CEO Survey 2015: Committing to Digital by Mark Raskino. This report is part of the Gartner Special Report C-suite Perspectives: 2015 CEO Survey.

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