Senior executives who lack a comprehensive understanding of digital technology may make poor investment decisions or pursue initiatives in the wrong order. Without a clear understanding of how digital technologies generate value in their business models, they may invest in trendy technologies that do not actually benefit their business. Additionally, executives with limited knowledge of digital technology may make fragmented, overlapping, or small-scale investments that impede their ability to effectively leverage digital technologies. This lack of grounding can slow down a business's ability to deploy new digital technologies and stay competitive in a rapidly changing landscape. In today's world, it is crucial for leaders to have a solid understanding of digital trends and technologies to make informed decisions and remain at the forefront of their industries.

To improve your company's understanding and implementation of digital technology, you can look to the example of a global industrial conglomerate. This company recognized the need for digitization but felt its leadership team lacked the necessary expertise to drive change. To address this, the company created a digital academy to educate leaders about relevant digital trends and technologies and provide a forum for discussion and learning. External experts were also brought in to address areas where internal expertise was lacking.

In addition to the digital academy, the company conducted an organization-wide assessment of digital capabilities and evaluated its culture. This provided a clear understanding of what needed to be built throughout the digital transformation. Business leaders were held accountable for explaining and justifying their digital plans to other executives and creating an enterprise-wide digital strategy that was understood and supported by all.

Many companies are still stuck in traditional ways of thinking about their revenue sources and the players in their industry, and are missing the ways digital is changing both. To start thinking like digital disruptors, a company needs a jolt - something to force them to think differently. This involves a sprint process to explore how their industry and business could look if they started from scratch and redraw their road map.

For example, a European financial-services company's financing division examined how digital was impacting their business and asked deeper questions about their business model, such as "how does our business model change if people stop buying cars and start buying mobility?" This kind of exploration is essential as digital, regulatory, and societal trends collide with today's value chain. For a car insurer, this might mean asking what car insurance means in the context of autonomous vehicles instead of just focusing on how to sell car insurance better online.

It can be dangerous for companies to fall behind digital first movers, but some executives may fear responding to digital changes and making big bets. This fear can create strategic inertia and hinder progress. To overcome this, a deliberate effort is needed, just like redesigning key processes across the organization. Company leaders must make a clear case that digital changes cannot be ignored and that embracing change can create more value. Leaders also need the necessary tools and support network to succeed in driving the digital transformation journey. It's important to build a sustainable program to support leaders driving change, in addition to detailing digital-initiative plans.

The industrial company we mentioned earlier had to acknowledge that digital transformation would require its leaders to possess different skills and qualities to be effective. This change in leadership requirements caused concerns about losing power or being marginalized among the company's business-unit leaders. To address these concerns, the company implemented a top-team effectiveness program. The program helped leaders to identify and confront their fears, recognize how those fears were affecting their decision-making, and develop the necessary mindset and behavior changes to take ownership of digital initiatives and become role models for their teams.

Leaders at the industrial conglomerate formed communities to share best practices and coordinate implementation of digital initiatives. These communities also provided skill-building activities such as bringing in speakers and organizing visits to Silicon Valley. Similar organizations have formed digital leadership training programs supported by advisory boards to help executives embrace the uncertainty of digital transformation and understand the career trade-offs involved. These efforts are reinforced by digital IQ-raising initiatives, as leaders who understand the shifting landscape also understand the impact on their careers.

Going all-in on a digital strategy often means venturing into uncharted territories, simultaneously exploring new markets and implementing new technologies to revamp existing businesses. In many cases, being the first to move into a digital market requires not only a shift in direction, but also the ability to do so quickly, outpacing competitors. These circumstances can create uncertainty and pressure, leading to hasty or poorly planned decisions, and anxiety about the effectiveness of those decisions.

To avoid guesswork when pursuing a digital strategy, anchor your decisions to a thesis about the business outcomes that different digital investments will produce. This means drawing fast, ground-level lessons from data to determine whether your business logic is correct. By having a well-articulated view of the outcomes, you can track how well the strategy is working and assess whether the new direction is worth it in terms of both financial capital and organizational pain. It is crucial that proof points are grounded in digital reality. For example, a global oil and gas company investigated the potential impact of several advanced technologies on its business by exploring how they could improve productivity and safety in unmanned operations and identifying operating hurdles. By using "skunkworks" efforts to gain sharper insights into the timetables and financial profiles of different investments, the company projected a pretax cash-flow improvement exceeding 20 percent by 2025, which built the confidence of senior leaders and the board.

To reduce guesswork, companies can use real-time data to experiment and gain insights quickly. With digital, leaders are faced with more strategic choices but less time to make and implement them. However, this also provides an opportunity to gain rapid, data-driven insights into how things are going. For example, an oil and gas company automated the evaluation of business cases to reduce anxiety about investments and gain hard data on performance. This gave them the confidence to push cutting-edge solutions and see in near real-time what worked and what didn't.

Breaking up big investments into smaller, manageable ones is an important part of a nimble approach. The oil and gas company mentioned earlier was uncomfortable with throwing a lot of money at a problem without a plan. To address this, the company set up a new central office to oversee digital investments and manage a portfolio of projects. The head of digital had the responsibility of approving which ideas would move forward, and the ideas were tested from the outset to minimize wasted resources. This "fail fast" mindset allowed the company to learn quickly from mistakes and identify synergies across business units. These processes helped the company manage risks, gain confidence as first movers, and quickly change course when needed.

Digital transformation is a challenging process that requires companies to focus on specific initiatives while avoiding diffusion of effort. Many companies try to do too many things at once, which can result in unfocused digital initiatives. To navigate this challenge, two concepts can help: viewing the company as a portfolio of initiatives at different stages, and embracing the necessity of “big moves” such as the reallocation of resources and sustained capital investment. These strategies should be mutually reinforcing, so that developments in the core can help support new digital businesses and vice versa. A global IT-services company provides a good example of how to apply these concepts in practice by scrutinizing which traditional businesses face obsolescence as a result of digital, which new digital businesses to invest in, and how much to invest.

To start the digital transformation process, the company assessed each of its businesses and asked three questions: What digital products or services were missing from the portfolio? How could digitization improve customer experience? Which areas should be abandoned? The company then created scenarios to predict how value pools in each industry vertical would shift, in order to understand the types of services that clients would demand. Based on this information, the company was able to make informed decisions about where to place bigger bets on new digital offerings.

To compete in the digital age, companies need to take big steps and invest in new digital businesses. One way to do this is by evaluating their portfolio of businesses and making hard decisions about which areas to invest in or abandon. Companies should also analyze how value pools in their industry verticals are shifting and invest accordingly. By investing in both core and new businesses, companies can generate revenue gains and cost reductions. To succeed in the digital era, leaders must inspire their teams to take bold bets and calibrate risks while staying true to their strategic goals. Fortunately, the digital era provides more information and test-and-learn approaches to help companies correct course. Ultimately, digital strategies may be more challenging, but they have the potential for greater rewards and are well worth the cultural reforms required for success.