Digitalization is the fourth industrial disruption since the 1700s. CEOs should consider digitalization as a transition to the era of digital economy, not a project with a completion date. Here I present six leadership challenges CEOs face in the digital economy.

1. © Marko Luhtala 2017
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Leadership in the digital economy
6 CHALLENGES FOR CEOs
June 2017
MARKO LUHTALA

2. © Marko Luhtala 2017
My personal journey in digitalization
2
Early adopter
eBusiness director at Nokia, 1999–2002
Solution provider
Sales director/Enterprise solutions at Nokia, 2002–2005
User of digital technology
widely in commerce
Director/ VP of Retail at Nokia, 2006–2010
Solution provider, SaaS-entrepreneur
CEO at NearMe Services, 2010–2016
Advisor and implementer
Digitalization consultant at Ajantasalla, 2016-
MARKO LUHTALA
© Marko Luhtala 2017

3. © Marko Luhtala 2017
Discussion topics
Digitalization is the fourth industrial
disruption since the 1700s
Six leadership challenges in the digital
economy
Final note: How to predict whether
you will fail or succeed?

4. © Marko Luhtala 2017
We have the fourth major industrial
disruption since the 1700s
4
Electricity
Late 1800s
Computers
1980s
Digitalization
Now
Steam engine
Mid 1700s
How was your industry before computers and electricity?

5. © Marko Luhtala 2017
Impacting both your products
and business model
5
Product
Digital services enhancing
current products
New digital
products
New pricing models
Operating
model
Sales & marketing
Operations
People & skills
Customer support
Customer experience
Market
Who are your competitors?
Who are your
customers?
Who belongs to your
value network?

6. © Marko Luhtala 2017
As a CEO you should focus
on the end game
6
Consider digitalization as a transition to
THE ERA OF DIGITAL ECONOMY
not a project with a completion date
THE ERA OF DIGITAL
ECONOMY
IMPORTANT
Understanding how to
get there
MORE IMPORTANT!
Understanding how to lead your
business when you are there

7. © Marko Luhtala 2017
Don’t get caught in the transition
7
Don’t prepare a separate digital strategy – look for
digitalization opportunities in all strategies
If you appoint a Chief Digital Officer, make sure his
role is to make digitalization become business as
usual – and then terminate the role
Resist the temptation to focus on shiny IT solutions
before concluding what you and your customers need
STRATEGY?
CDO?
IT?

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A competitive edge and
digitalization go hand in hand
Challenge #1

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Companies say they don’t invest
in digitalization yet…
9
…because they have more important
priorities in their strategy, such as:
scalable sales and marketing models…
new business models…
exceptional customer service…
offering innovation…
internal productivity…
data as a source of strategic value creation…
€

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At the same time,
winning companies…
10
…invest in digitalization because they want to gain a
competitive edge in those particular areas
Because
digitalization
delivers:
• Higher impact
• Faster speed
• Better cost efficiency
in strategy
implementation

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Your shareholders have a clear interest
in digitalization…
11
…because companies who
apply digital technologies typically:
1€ one-time revenue equals 1€ in valuation
1€ recurring revenue equals 3–4€ in valuation
Example: software business Innovative companies generate total
shareholder return premiums of
7.5 percent over their industry peers
Source: BCG
GROW
FASTER
BUILD
A UNIQUE
ADVANTAGE
COMMAND
HIGHER
VALUATION

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Would you know if there
was an industry disruption
around the corner?
Challenge #2

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Before setting up the digital agenda
for your company
13
Is there a risk
(or opportunity)
of a tectonic shift
in your industry
fueled by digitalization?
ASK
YOURSELF
© Marko Luhtala 2017

14. © Marko Luhtala 2017 14
CEOs in most industries are
expecting disruption
Source: “Digital Pulse 2015”, Russell Reynolds Associates

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You can disrupt the product or
the business model
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Change the
pricing model
and earnings
logic
Elevate customer
service and
experience to a
new level
Change the core
offering features
from physical to
digital
Build a de facto
platform or
“operating system”
for the industry
Bypass
middlemen
Typical ways
of creating a
digital disruption

16. © Marko Luhtala 2017
Disruptors redefine the rules and roles
in the industry
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A new set of competitive requirements
For example: 24/7 availability, personalized customer service,
predictive maintenance, excellent user experience
Change in what customers are paying for
For example: usage instead of ownership, benefits instead of
work done, data instead of experts, software instead of hardware
A new ecosystem and roles in it
For example: OEM roles, access to ecosystem only through
disruptor’s platform, licencing programs, developer networks

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Will your industry attract
external disruptors?
Value of industry.
Data intensity.
Amount of old habits.
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If high, the chance of
external disruptors is
also high
What would Google do in your business?
ASK
YOURSELF

18. © Marko Luhtala 2017
The nature of work is changing
Challenge #3

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Machines are rapidly entering
white collar roles
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HUS – The Hospital District of
Helsinki and Uusimaa – is
using artificial intelligence to
support specialist medical
care diagnostics and
treatment decisions.
DLA Piper in the first law firm
in Finland to adopt artificial
intelligence. AI will first reduce
routine tasks from lawyers.
Software robots, digital
automation and AI will reduce at
least half of our routine tasks,
estimates Palkeet – Finnish
government shared services
center for finance and HR.
Several
studies
show:
Machines are better than
humans at choosing the
best employees
AI

20. © Marko Luhtala 2017
You will need some totally
new people and skills
20
Examples of new roles
in digital economy Digital
marketer
SW
architect
Data
scientist
UX
specialist
SOME
expert

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Where is the knowledge
in your company?
21
Remembering
information
Experienced
people have the
knowledge
Finding
information
Knowledge is
in people AND
data
PAST TODAY

22. © Marko Luhtala 2017© Marko Luhtala 2017
The amount of data is exploding
22
of all data EVER has
been produced during
the last two years
90%
Data sources for knowledge building
In-house
business and
product data
Industry
bodies and
publications
Public
government
databases
3rd parties
consolidating
and selling
data
Open source
data e.g.
maps, traffic,
weather
Online industry
and competitor
data
Public
research
documents
and thesis

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The harder it gets for people the easier
it is for a machine
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Learning is a core capability for all humans.
MACHINE LEARNING is by far the hottest trend in artificial intelligence.
Hint: Start with use cases and “big business questions”, not technology
Lots of data
Complex dependencies
Figures, images, text
Answers
Predictions
Correlations
Recommendations

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A strategic question for your
management team
24
What should…
PEOPLE KNOW AND DO? MACHINES KNOW AND DO?

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How to speak the same
language as your digital
specialists
Challenge #4

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Do you know how to attract the
right digital talent?
26
How would you
set the targets
and KPIs for these
roles?
Can you spot
the difference
between a super
candidate and a
smooth talker?
Where would
you look for
these talents?
Do you know
what makes them
tick and why they
would want to
work for you?
Can you list the
key tasks for a
data scientist or
SOME expert?
?

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Are you on the same page?
27
SaaS
API
UX/UI
Backend
IoT
Cloud
Machine learning
Software robots
You need to speak the same language as
the people who are shaping your future
It means a lot of new terms and concepts
in a CEO’s vocabulary

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Understanding your digital specialists…
28
…is mandatory for you and your
management team,
to understand the future core
assets of your company

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But don’t forget your existing people
You need to communicate a vision for your
company in the digital economy…
…in a way that EVERY team member finds
clear and personally compelling.
Otherwise you will soon have an “us and
them” mentality.
29

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In-house innovation
is not enough
Challenge #5

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Startups are the main source
of digital innovations
31
Corporates are turning
to startups to:
• complement their R&D
• leverage digital talents they are not able to recruit
• accelerate learning speed
HOWEVER There are hundreds of potential startups
80% of them fail at the early stages
Startups have very different culture, clock speed and
way of working compared to corporates

32. © Marko Luhtala 2017
Winning companies have clear partner
programs for startups
32
Ingredients
of a partner
program
Communicate clearly which
business problems you want the
potential startups to focus on.
Provide a clear channel and
process for startups to approach
you with their proposals and
solutions.
Clarify the rules for
co-operation including
commercial terms. Be fair:
startups don’t have in-house
lawyers to read the small print.
Partnering must be
win-win. Measure and
nurture the commercial
value of your ecosystem
systematically.
An effective partner program lets startups be
startups while you can operate like a corporate.

33. © Marko Luhtala 2017
Make sure your board is ready
for the digital economy
Challenge #6

34. © Marko Luhtala 2017
4 common reasons why boards fail
to drive digitalization
34
Without digital skills the board has difficulties in crystallizing
the impact and direction of the change. Compelling vision, roadmap,
and implementation are left vague.
Running existing business and building a new one in parallel
is challenging especially if it involves major changes in the
business model.
Discussion in digitalization jumps too quickly to technology and
IT. This is not helped by dozens of solution providers bombarding
you every week.
The board and top management have their schedules filled to the
minute running the existing business. There is not enough time to
focus properly on the digital transformation.
DIGITAL
SKILLS
EXISTING
BUSINESS
FOCUS
ON IT
AVAILABILITY
OF TIME

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A good acid test for the board
35
are you ready to cannibalize
your existing business to
build a new one?
When the time comes

36. © Marko Luhtala 2017
How to predict whether you
will fail or succeed?
Final note

37. © Marko Luhtala 2017
My opinion: Your chances depend on
your company culture
37
Is your culture fit for the digital transformation?
HIGH FIT
You invest in R&D and new competences
at least as much as industry peers
Trial and error is accepted for
new initiatives in your company
Teams are empowered to innovate, new
ideas are welcomed by top management
Decisions are made based on
information
New recruits are systematically searched
from other industries
LOW FIT
You maximize short term profits and cash
flow by limiting investments
You avoid risk taking and rather copy
tested industry practices
Strategy creation and decision making is
top down
Decisions are made based on intuition
Industry experience is highly-weighted
for employee selection

38. © Marko Luhtala 2017
ADVISOR, CONSULTANT
marko.luhtala@ajantasalla.fi
+358-50-3879903
www.linkedin.com/in/marko-luhtala-07b02321
MARKO LUHTALA
I HELP COMPANIES WIN IN THE
DIGITAL ECONOMY