It has been an interesting week of news, especially if you observe it through the lens of digital transformation.

The first interesting news item came from a letter Larry Fink, CEO of $4.6 Trillion fund Blackrock sent to CEOs of S&P 500 Companies. In the letter, he states a core issue facing many large public companies, “Many companies continue to engage in practices that may undermine their ability to invest for the future. We are asking that every CEO lay out for shareholders each year a strategic framework for long-term value creation.”

Should the strategic framework include a digital strategy and digital transformation program? I think Larry thinks so based on his follow on comments

“But one reason for investors’ short-term horizons is that companies have not sufficiently educated them about the ecosystems they are operating in, what their competitive threats are and how technology and other innovations are impacting their businesses.”

Larry’s message is a bit self serving, “Long-term growth remains an issue of paramount importance for BlackRock’s clients, most of whom are saving for retirement and other long-term goals.” That being said, he is directly warning America and Europe’s largest enterprises that their businesses are at significant risk without strategic plans that account for technology change, new innovations, and new forms of disruptive competition.

Remember my post on CEO’s who “get it”?

When Digital Transformation Fails

Later that day Marissa Mayer, CEO of Yahoo announced plans to layoff 15% of the staff, and disclosed that they were exploring strategic alternatives. I have no inside knowledge of Mayer and her attempt to turnaround Yahoo, but I sympathize with the predicament of digitally transforming a twenty year old internet company that never fully resolved whether they were a technology or a media company. A couple of years ago, Mayer responded to questions on their strategy, “What matters is that we build products that people love” which may have been the right answer but execution is falling short of this goal.

Yahoo never truly built lovable products and instead pursued “quick wins” through a parade of techquisitions. A total of 48 transactions since she took over as CEO in July/2012 including big bets acquiring Tumblr, BrightRoll, and Polyvore. But did these products evolve to products we love? More importantly, was there a strategy to integrate these capabilities into an end to end platform that could compete either as a technology or as a media platform? Clearly not, and the result is that Yahoo is now a bag of businesses that will likely get acquired or carved up to multiple takers.

And Then The Bubble Burst

Then came Friday’s selloff after LinkedIn and Tableau disappointed investors with their growth outlook and their stocks took a beating. The selloff spread to other SaaS solutions providers including SalesForce, Workday, Qlik, Netsuite, Hubspot, ZenDesk, and Demandware all taking 10-20% hits.

Why is this important? Many CIO leverage these platforms as an underpinning to their digital transformation by better enabling their businesses with modern, integrated CRM, Marketing, HR, and BI platforms. If these SaaS businesses are showing slower growth, it may imply that the pace of digital transformation is slower than forecasted. It also may mean that these vendors will raise prices to meet the growth promises they’ve made to investors – a decision that could also slow down the transformation efforts of businesses that use the platforms.

Review Your Digital Strategy and Transformation Plans

So what does this all add up to if you are leading a digital transformation effort? It depends. Perhaps you’ll use Larry Fink’s note to CEOs to get more executives on board and participating in the transformation effort. Perhaps you’ll learn from Mayer that you need to spend more time learning customer needs, or that maybe quick wins via acquisition don’t pay out if you don’t strategically integrate the experience in a way that benefits customers. Maybe you’ll fear raising prices and renegotiate vendor contracts, or maybe you’ll take a second look at all your SaaS platforms and find ways to consolidate.

The biggest lesson is that leaders have to observe market conditions, the emergence of new competitors, evolution in customer needs, and changes in how their business is performing to adjust both the digital strategy and the digital transformation program.

* Photo Credit – JD Lasica. Modified with quote captured from a different source.