Tackling Digital Disruption from the Top

Digitization has caused lots of disruption in the financial services industry, with new entrants stealing retail customers and changing customer expectations (see the first post of this two-part series, “How Digitization Is Creating a Fork in the Road for Banks”). Yet it’s only a matter of time before this disruption spreads to more industries.

This is changing the job description for CEOs, who now must take responsibility for the disruption. Why the CEO? Because digitization affects the entire organization. Our research shows that when businesses don’t approach digitization from the top, it results in islands of digitization. It’s then very tough to meet customers’ expectations—much less customize—because you’ll never have the complete picture. Sales will know about sales, financing will know about bill paying, and operations will know about product delivery preferences. Customers don’t want this disconnected approach. They want to be seen as a whole entity by the entire organization.

CEOs have to tackle disruption in three ways:

  1. Simultaneously cut costs and innovate. CEOs have to create an ambidextrous organization that can deliver low cost and innovation simultaneously. Every year, companies need to pull out 3–5% of cost PLUS create bottom-line impacting innovations! Why? Mostly because of search. It’s so easy for customers to search to find the best credit card rates, the best auto insurance, the newest products, the best deals, etc. Target’s CEO highlighted this problem in the media when he talked about how customers in his store use their phones to search for lower prices at competitors on his free Wi-Fi. Regular innovation is critical, as it helps defer the cost pressures by having something new—and less price sensitive—each year. Why ambidextrous? Because we need to simultaneously cuts cost with one hand and change the game with the other.
  2. Amplify customer voice. The best way to meet customer needs is to amplify consumers’ voices inside the company. They have to know what the consumer wants and give the consumer a way to talk to the organization and feel heard. CEOs can’t sit around a boardroom with board members and talk about what they think the customer wants because too often they will be guessing. Instead, they need to use social media, big data, or tools like Net Promoter scores to find answers. TripAdvisor is a great example of a company that gives consumers a voice with customer-driven reviews, ratings, and forums.
  3. Perform organizational surgery. To accomplish the first two tasks, CEOs will often need to perform radical organizational surgery, because most companies were not designed to thrive in a digital, always-on economy. To achieve great customer experience, USAA reorganized, creating a Member Experience Group organized by life events, and restructuring other areas of the organization. Customers no longer deal with a specific product area (such as car loans) but rather a specialized group of employees who can help them navigate a range of products around their current life event. For example, for buying a car, this includes setting up the loan, purchasing the car, and taking out the insurance policy. These major organizational surgeries are disruptive and change the balance of power inside of companies, but are needed for them to thrive in a digitally disrupted world.

While it may be tempting to make digitization the responsibility of the IT unit, these changes require leadership from the top. Like it or not, they are now the responsibility of CEOs.

Is your CEO ready to tackle digital disruption?

This is the second post in a two-part blog series on this topic by Peter Weill, senior research scientist and chairman of MIT CISR and Stephanie Woerner, a research scientist at MIT CISR. In a related video, “The Role of the Financial Services CEO Is to Deal with Digital Disruption,” Peter Weill details how CEOs can tackle digital disruption.