Is Your CEO Fit to Lead in the Digital Age?

• Author: Charan, Ram
• Position: BEING A HIGH-TECH DIRECTOR

We've all seen Industry stalwarts ravaged by digital companies, leaving many legacy businesses to wonder, "Are we next?"

Boards can't allow their companies to be sitting ducks waiting for the next shot to be fired. They should expect their CEO to decisively lead the company into the digital age, to be a creator of change and to not be fearful of it.

This era belongs to CEOs who have a firm grasp of the tremendous potential of digitization. The availability of algorithms, low-cost computing power, AI and open technology systems are lifting the ceiling on what is possible. We know that entrepreneurs who can conceptualize and orchestrate the delivery of a better customer experience can start from nothing and scale up very fast to overtake established players. We've also seen established companies like Netflix, Adobe and Starbucks reinvent themselves for the digital world, while some others are just getting started.

Directors should pose the following questions and watch for the telltale signs that their CEO is up to the challenge:

Does the CEO seem to grasp the power of a platform--a digital core of algorithms that connects customers and members of a desired ecosystem to deliver a compelling end-to-end experience? CEOs don't need to be computer scientists, but they should be sure that they have experts on data analytics deeply involved in shaping company strategy. Many CEOs are struggling with whether they should use the existing IT person or seek a new chief digital officer. Others are recruiting from born digital companies. Macy's, for example, recently hired a senior vice president from eBay to be president. Directors should learn too; the board could ask the CEO to include the digital experts at board dinners so directors can get their questions answered and stay informed about where the company is on its digitization journey.

Do strategy presentations and financial projections reflect a shift to digitization? The truth is that many legacy companies are already feeling the effects of digital-based competitors in the form of lower prices, tighter margins and shrinking market share. The decline may be subtle for now and management might attribute it to other factors, but for many companies, it is a structural shift that will only worsen. As the traditional players get engrossed in fighting among themselves for a greater share, they might downplay the decline in overall demand. Boards should be attuned to the explanations of market conditions...