The Digital Advantage: How digital leaders outperform their peers in every industry - MITSloan
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
MITSloan
MANAGEMENT
The Digital Advantage:
How digital leaders outperform
their peers in every industry
Transform to the power of digital
Introduction
New digital technologies like social media, mobile, and analytics are advancing rapidly on the economic landscape. These
innovations are used widely by consumers and employees alike. Facebook has more than 1 billion users.1 There are more than 6
billion mobile phones.2 Employees often have better digital solutions at home than they do at work, and many customers are more
technology savvy than the people trying to sell to them.
Executives in every industry – from media to electronics to paint manufacturing – face a bewildering array of new digital
opportunities. They are paying attention, but they have few signposts to guide them. Most stories in the business media focus on
fast-moving startups like Zynga and Pinterest, or on a few large high-tech firms like Apple, Google, or Amazon. Unfortunately, to
many leaders, stories of these nimble and innovative firms just do not make sense for traditional companies that are older, larger,
and burdened with inflexible legacies.
We decided to find out what fast-moving digital innovations mean for large traditional companies. In two years of study covering
more than 400 large firms (See About the Research), we found that most large firms are already taking action. They are using
technologies like social media, mobile, analytics and embedded devices to change their customer engagement, internal
operations and even their business models. But few firms have positioned themselves to capture the real business benefits.
Our research points to a real “digital advantage” to those that do.
Digital maturity matters. It matters in every industry. And the approaches that digitally mature companies use can be adopted by
any company that has the leadership drive to do so.
Few firms have positioned themselves to capture
the real business benefits. Our research points to
a real “digital advantage” to those that do.
2
What is Digital Maturity?
Some companies are what we call the Companies in all industries are separately in social media, digital
“Digirati.” They have the digital maturity investing in interesting digital initiatives. product design, custom manufacturing,
not only to build digital innovations, However, in many firms, these and other areas (See page 19).
but also to drive enterprise-wide investments are uncoordinated and The elements of transformation
transformation. And they benefit from sometimes duplicative. management intensity work together
their actions. Digirati have significantly – through a combination of top-
higher financial performance than their Firms maturing in the second down leadership and bottom-up
less digitally-mature competitors. dimension, transformation innovation – to drive ongoing digital
management intensity, are creating transformation. However, in many
Digital maturity is a combination of two the leadership capabilities necessary companies, these elements are overly
separate but related dimensions (See to drive digital transformation in the slow or conservative, preventing
figure 1). The first, digital intensity, organization. Transformation intensity the company from investing in
is investment in technology-enabled consists of the vision to shape a new innovative opportunities.
initiatives to change how the company future, governance and engagement
operates – its customer engagements, to steer the course, and IT/business
internal operations, and even business relationships to implement technology-
models. Burberry (See page 5) used based change. Volvo developed a
technology to improve the in-store vision and governance capabilities
experience and increase operational before it began to implement new
excellence. Codelco (See page 5) digital services in its cars.3 Nike built
is automating mining operations to a digital division called Nike Digital
improve efficiency and safety while Sport to coordinate and extend
creating new business opportunities. the successful activities it had built
Figure 1. The What-and-How of Digital Transformation
DIGITAL INTENSITY TRANSFORMATION MANAGEMENT INTENSITY
Technology-enabled initiatives in: Leadership capabilities including:
• Customer Engagement • Vision
• Internal Operations • Governance
• Engagement
Location-based marketing
• IT-Business Relationships
Connected products
Digital Design
Real-time monitoring of operations Vision of the firm’s future
Mobile sales Cross-silo coordination
Optimized Pricing
Evolving the culture
Communities in social media …
New skills …
3
The two dimensions spell out four with the vision of gaining synergies aiming to spend wisely, their careful
different types of digital maturity among the items. Digital Fashionistas approach may cause them to miss
(See figure 2). Companies in the are motivated to bring on digitally- valuable opportunities upon which their
lower left are Digital Beginners. These powered change, but the digital more stylish competitors will pounce.
firms do very little with advanced transformation strategy is not founded
digital capabilities, although they on real knowledge of how to maximize Firms at the top right are Digirati.
may be mature with more traditional business benefits. Companies lacking They truly understand how to drive
applications such as ERP or electronic enterprise-level governance may value with digital transformation. They
commerce. Although companies may find they are in this quadrant at the combine a transformative vision,
be Beginners by choice, more often corporate level, even if digital efforts are careful governance and engagement,
than not they are in this quadrant by more mature in some business units. with sufficient investment in new
accident. They may be unaware of the opportunities. Through vision and
opportunities, or may be starting some Companies in the bottom right engagement, they develop a digital
small investments without effective are Digital Conservatives. They culture that can envision further
transformation management in place. favor prudence over innovation. changes and implement them
Conservatives understand the need for wisely. By investing and carefully
Firms in the top left are Digital a strong unifying vision as well as for coordinating digital initiatives, they
Fashionistas. These companies have governance and corporate culture to continuously advance their digital
implemented or experimented with ensure investments are managed well. competitive advantage.
many sexy digital applications. Some of However, they are typically skeptical
these initiatives may create value, but of the value of new digital trends,
many do not. While they may look good sometimes to their detriment. Though
together, they are not implemented
Figure 2. Four Types of Digital Maturity
FASHIONISTAS DIGIRATI
DIGITAL INTENSITY
BEGINNERS CONSERVATIVES
TRANSFORMATION MANAGEMENT INTENSITY
4Codelco:
Revolutionizing Mining Through Digital Technologies
Codelco Digital was created in 2003. to promote new ideas and encourage
It has both operational and strategic our workers to innovate.”4
objectives: to drive initiatives in mining-
Today, the firm is shifting from the
automation and also to support the
traditional “Codelco 1.0” model to
Codelco, the largest copper producer CEO in developing, evolving and
“Codelco 2.0”, a real-time mining model
in the world, has its roots back in the communicating a digital vision. Today,
with highly automated processes and
1800s. Owned by the Chilean State, it four mines in Chile are operated
remotely-controlled machines. And
operates internationally and employs automatically: trucks drive themselves,
there is already a vision for “Codelco
over 18,000 people. At the beginning operations are controlled remotely,
3.0”: an intelligent mining model relying
of the millennium – facing increasing information is shared in real-time,
on integrated information networks and
challenges around workers’ security, and so on. This was more than just a
fully-automated processes.5
environment and productivity – Codelco technology implementation challenge.
took a hard strategic look at what the It involved a new culture, employee
future of mining could be. An important engagement, and new skills. As CIO
goal was to automate mining operations, Marco Antonio Orellana Silva explains:
shifting from a physical-intensive “Our company is very conservative, so
model to a knowledge and technology- changing the culture is a key challenge.
intensive one. To turn vision into reality, We created internal innovation awards
Burberry:
The Digital Transformation of an Iconic Luxury Brand
as online, Burberry also leveraged Ahrendts, “Digital has been a catalyst
digital technologies to enrich the for everything in the company and,
in-store customer experience, while when we got everyone on board with
at the back end, it rolled-out a global this concept, they were clamoring to
Burberry is an iconic British luxury ERP program to unify processes and become even more connected.” While
brand established in 1856. When CEO integrate data across the globe. this transformation is now bearing fruit,
Angela Ahrendts took over in 2006, Ahrendts already has one eye on the
Achieving this transformation was
it was significantly underperforming future possibilities: “Consumer data
much more than new technology
against its peers: while the overall will be the biggest differentiator in
implementation. This was a closely
sector was growing at around 12-13% the next two to three years. Whoever
managed change program to achieve
a year, Burberry’s rate was about 1-2%. unlocks the reams of data and uses it
cross-channel consistency, engage
To address these issues, Ahrendts strategically will win.”6
employees, secure the right skills,
launched a significant transformation
and develop strong IT-business
program covering multiple business
relationships. Specific governance
areas, from customer experience to
was put in place, new roles were
operational excellence, and largely
created, and missing skills were
driven by digital technologies. As well
developed or acquired. According to
5Digital Maturity Matters
Companies take different paths Asian Paints went the other way, and business models. Both firms are
to digital maturity. Nike started creating vision, governance and IT reaping huge benefits.
by developing digital intensity in capabilities to become a more unified
silos. Then it added elements of company.7 Then it repeatedly built on These companies are not alone.
transformation management intensity its capabilities to transform its customer The 391 companies in our survey vary
to link the silos and launch new engagement, internal operations widely on digital maturity (See figure 3).
capabilities. Indian paint manufacturer
Figure 3. Digital Maturity Varies Widely
FASHIONISTAS DIGIRATI
BEGINNERS CONSERVATIVES
To understand the relationships to their less-mature competitors, we Digirati – those companies that are
between digital maturity and financial found striking differences (See figure mature in both dimensions – have the
performance, we analyzed industry- 4). Companies that are mature in highest performance, far outperforming
adjusted financial performance of either of the two dimensions outstrip less-mature firms on multiple financial
the 184 publicly traded firms on our industry competitors along different measures.
sample (See About the Research). dimensions of financial performance.
Comparing digitally mature companies
6Figure 4. Financial Performance
REVENUE GENERATION
Companies with stronger digital intensity derive
more revenue from their physical assets
+6% +9%
Basket of indicators:
• Revenue / Employee
• Fixed Assets Turnover (Revenue /
Property, Plant & Equipment)
-4% -10%
PROFITABILITY
Companies with stronger transformation
management intensity are more profitable
-11% +26%
Basket of indicators:
• EBIT Margin
• Net Profit Margin
-24% +9%
MARKET VALUATION
Companies with stronger transformation management
intensity achieve higher market valuations
-12% +12%
Basket of indicators:
• Tobin’s Q Ratio
• Price / Book Ratio
-7% +7%
7Digital Intensity and Digirati outperform all
Revenue Generation others
Companies that are mature on the Companies that Firms that are more mature on
digital intensity dimension (vertical either dimension outperform their
axis in the matrix) are better at driving
are mature in competitors in specific and different
revenue through their existing assets. transformation ways. The Digirati – the 25% of
On a basket of measures including firms that are more mature in both
revenue per employee and fixed
management intensity dimensions – far outperform the
asset turnover, Fashionistas and are more profitable. others. On average, Digirati are 26%
Digirati outperform average industry more profitable than their industry
performance by 6-9%. Hospitality firm competitors. They generate 9% more
Caesars Entertainment, for example, revenue through their employees and
has launched a location-based mobile physical assets. And they create more
marketing capability (See page 16). value, generating 12% higher market
Customers get offers when and where Transformation valuation ratios. The Digirati advantage
they need them, and Caesars is able to Management Intensity and is more than just the sum of
learn – in real time – about the personal Profitability performance gains for Conservatives
preferences of each customer. and Fashionistas. Digirati combine
Moving in the other dimension, digital intensity and transformation
Digital intensity helps companies companies that are mature in intensity to achieve performance that
to gain and manage more volume transformation management intensity is greater than either dimension can
with existing physical capacity. The are more profitable. On average, deliver on its own.
difference is substantial. For example, Conservatives and Digirati are 9-26%
Fashionistas – strong on digital intensity more profitable than their average
but not on transformation management industry competitors on a basket of
intensity – drive 16% more revenues measures including EBIT margin and
through their human and physical net profit margin. For these firms,
assets than Conservatives do. strong vision and governance help to
align investments along a common
direction. They weed out activities that
run counter to the future vision of the
transformed firm. Then they engage
their employees in identifying new
opportunities. Executives of French
Digital intensity helps yellow pages firm Pages Jaunes
declared that all future investment,
companies to gain and other than maintenance, must focus on
manage more volume growing digital revenues and profits,
not improving the traditional paper-
with existing physical based business. Meanwhile, through
capacity. communication and training, executives
engaged the workforce to enact the
vision and generate new ideas.
8Digital Maturity Matters in
Every Industry
The results are clear. On average, data points. High Technology firms Manufacturers and CPG firms, for
Digirati are 26% more profitable than lead in digital maturity, as might be example, are still in the Beginner
their industry competitors. For the large expected. Banking and retail are in the quadrant on average, although
traditional companies we studied – Digirati space, but are not as mature as some firms are more advanced.
most of which are $1 Billion or larger in high tech. The bankers’ Digirati status Pharmaceutical firms, while still
revenues – the difference can be many may be because digital features such Beginners on average, look more
millions of dollars on the bottom line. as online or mobile banking are good like Fashionistas than the other two
But, does this mean every industry is for both banks and their customers. industries. Pharma companies are
equally affected? Can companies in Digital offerings provide convenience to starting to invest, but may be having
some industries afford to wait? customers while serving as lower-cost difficulty in linking organizational silos –
channels for the banks. a legacy of a long history of acquisition
Digital transformation is moving more and decentralization – or executives
rapidly in some industries than in Telecom and travel are in the may believe they have time before they
others. Companies in the travel and Fashionista space. They have launched need to transform.
music industries were hit early by important technology-based features
threats from digital competition, and and business model changes, but
Beginners
have already undergone profound on average their transformation
transformation, but still have more management intensity is not quite Pharmaceuticals – Executives
challenges to face. Industries such enough to move them into the Digirati. see threat in digital transformation
as financial services and retail but less opportunity than other
underwent major transformation due Insurance and utilities are in the industries do, perhaps because
to electronic commerce in the 2000s, Conservative space. Some insurers of regulation. Many are building
and are now starting to innovate with are focused on innovating with new capabilities in analytics and
technologies such as social media, technologies, but many are being held worker enablement, but most
mobility and analytics. Other industries, back by regulatory concerns or difficult firms are just beginning their
however, have yet to be hit hard by organizational legacies. Similarly, digital journeys, leaving many
fast-changing technologies. utilities may be hindered by legacies of opportunities untapped.
culture or regulatory environment that
Figure 5 shows digital maturity, by force a focus on cost reduction rather CPG – Digital opens new
industry, for our survey. Each dot than broader innovation. possibilities for firms to engage
represents the average maturity of directly with customers. 24% of firms
industries for which we have 20 or more Other industries are less mature. surveyed stand out as Digirati, while
others lag far behind. Generally,
less-mature CPG firms can improve
Figure 5. Maturity by Industry through stronger visions, greater
digital investments and more robust
transformation management.
Travel and Telecom Manufacturing – Traditionally slow
hospitality to react to digital,8 Manufacturing
High Technology
is on the cusp of emerging from
Beginner status. Efforts in digital
remain focused on operational
Retail Banking
efficiencies and worker enablement,
but the B2B nature of many
Pharmaceuticals Consumer
Packaged Goods companies may limit their attention
to digital customer engagement.
Insurance Manufacturers see less opportunity
Utilities and threat in digital transformation
than other industries. To mature,
Manufacturing firms may need a transformative
digital vision, plus the engagement
and governance to develop impetus
for digital investments.
* Average digital maturity for all industries with 20 or more companies represented in the survey
9Figure 6 helps to clarify maturity Conservatives Retailers, surprisingly, look more
differences among industries. It like utility companies in their digital
shows the percentage of firms in each Insurance – High expectations
maturity profile than like faster-moving
industry by quadrant. Note that more for digital and strong vision and
technology companies. Although
than 80% of travel and hospitality governance suggest that the
many retailers have mastered both
firms are Digirati or Fashionistas, and insurers should be leading the digital
dimensions of maturity when managing
there are no Beginners in the industry. revolution. Yet, this is not the case
multichannel e-commerce, some others
Many travel and hospitality firms have for most firms. Generally, scores
still struggle with the multichannel
made extensive investments in digital for engaging customers through
integration. Investing in transformation
intensity, but not all have invested in social media and mobile are lower
management intensity may help these
transformation management intensity than average, suggesting that
retailers master multichannel business
necessary to drive additional value from the combination of strong digital
while launching new ways to enhance
digital transformation. They may even governance capabilities, regulatory
sales and service through social media,
be Digirati in disconnected silos. These worries, and a risk-averse culture
mobile and analytics.
firms, having already implemented could be an innovation-stifler.
digital innovations, can invest in Other retailers may have slipped from
ways to develop a more coordinated Utilities – For the Conservative
Digirati to Conservative quadrants
and efficient approach to digital Utilities industry, efficiency is
if they were slow to invest in newer
transformation. Given the large number the name of the game in digital
technologies like social media, mobile,
of Digirati in the travel and hospitality transformation. Constant pressure
and analytics. The large number of
industry, Fashionistas should carefully to reduce costs and the advent
Conservatives in retail – already having
consider investing in transformation of smart metering create digital
transformation management intensity to
leadership capabilities. opportunities in customer
gain value from technology investments
experience, worker enablement,
– could move quickly into the Digirati
analytics and process improvement.
quadrant by increasing their digital
intensity in newer technologies.
Figure 6. Maturity Breakdown by Industry
High Technology 38% 25% 21% 17%
Banking 35% 23% 23% 19%
Insurance 33% 33% 13% 21%
Travel and hospitality 31% 19% 50% 0%
Telecom 30% 17% 48% 4%
Retail 26% 30% 17% 26%
Consumer Packaged Goods 24% 16% 28% 32%
Utilities 20% 40% 20% 20%
Manufacturing 12% 26% 17% 45%
Pharmaceuticals 7% 17% 43% 33%
Digirati Conservative Fashionista Beginner
10Fashionistas Do we have time to wait?
Telecom – Facing ever-increasing Executives in industries such as CPG,
levels of connectivity and data pharmaceuticals and manufacturing Digital Beginners
might be tempted to believe they
consumption, Telecom firms have been
do not yet need to engage in digital in any industry are
quick to respond. Of the organizations
in our study, 78% are high on digital transformation. Their industries are less several years from
digitally mature than others, so they
intensity (Digirati or Fashionistas) and
might have time to wait. gaining the digital
Beginners are almost non-existent.
To complement their digital strengths, maturity that their
Telecom firms can focus on stronger
Digirati Digirati competitors
digital leadership to integrate and align
initiatives across silos. Banking – Digital is revolutionizing already possess.
the relationship between customers
Travel and hospitality – Since the and retail banks, who have
advent of the web, digital has turned responded with strong capabilities
However, Figure 6 shows an
the industry upside down. The industry in customer service, analytics and
important message even for
has responded, with 81% of firms in even social media. Banks have
these industries. Every industry,
the Digirati or Fashionista quadrants an opportunity to parlay these
regardless of how digitally mature,
and no Beginners. Opportunities exist successes into new innovations
hosts companies that are Digirati. In
to improve worker enablement in in mobile or social customer
other words, every industry – from
many companies. To make the jump engagement and internal knowledge
manufacturing to high technology
into Digirati territory, Fashionistas will sharing. In addition, opportunities
– has firms that have already
need to build levels of excellence in exist to integrate initiatives and
begun to gain the benefits of digital
transformation management to match processes across corporate silos.
transformation.
their high digital intensity, including a
transformational vision for the future. Retail – A decade-long history with
This should be a call to action for
digital disruption has seasoned
executives in every firm. It takes
retailers and produced a number
several years to build maturity,
of Digirati (26% of firms surveyed).
especially in the transformation
Retailers are generally confident in
management intensity dimension.
the potential for social and mobile,
Digital Beginners in any industry
as well as their digital skill set.
are several years from gaining the
Moving forward, firms may want to
digital maturity that their Digirati
focus on cross-channel consistency
competitors already possess.
and worker enablement while
Every industry – from building analytics capabilities.
manufacturing to High-Tech – For High-tech, digital is
high technology – close to home. Firms generally enjoy
well-developed capabilities and high
has firms that have digital maturity. They are also – not
already begun to gain surprisingly – enthusiastic about
digital’s potential. This momentum
the benefits of digital may create further opportunities in
transformation. mobile and embedded devices.
11Building Digital Maturity:
Digital DNA
Digital maturity matters. It matters the business of connecting small person to suggest and even drive
for every industry. But how can you businesses to local customers. digital initiatives; in other cases
develop your own digital maturity? Books were just a technology that the digital agenda will be driven by
We have identified common patterns could be replaced by websites or business or joint IT-business teams.
for how companies have built their location-aware smartphone apps.9 In any case, shared understanding
between IT and business executives
digital advantage. All Digirati invest Digital governance. Effective
is critical to success.
in the elements of transformation investment rules and coordination
management – vision, governance, mechanisms improve efficiency By definition, both Conservatives
and engagement. They also perform and ensure digital efforts are and Digirati perform well on the
well on the digital intensity dimension. moving in the right direction. When four components of transformation
But, Digirati status is more than simply Spanish media conglomerate Prisa management intensity. What separates
launched its digital transformation
a combination of sound management Digirati, however, is Vision. Where
program, one of the first initiatives
and digital capability – there is Conservatives focus on control and
was to create a central digital unit
something inherently different about to coordinate and assist in building alignment, Digirati have also developed
Digirati DNA that separates them from digital businesses. Appointing a a strong transformative vision that
the rest. Digirati make strategic choices Group-level Chief Digital Officer, energizes employees to make change
about how they will be excellent in reporting directly to the CEO, happen.
digital intensity. They build their digital was a major signal. Local CDOs
intensity through a set of common were appointed in each division,
patterns that exploit complementary coordinating with the central unit.10
capabilities to deliver ever-greater levels Engagement. When employees
of digital value. are engaged in a shared vision they
help to make the vision a reality. They
Strong transformation offer less resistance to change and
often identify new opportunities that
management capabilities were not previously envisioned. At
We identified four key transformation Codelco, engaging employees in the
management practices that enable digital vision was critical to succeed,
but difficult because of the firm’s
companies to align their digital
Conservative culture. Codelco’s top
efforts under a common vision and
management launched innovation
coordination structure, and engage the contests for employees in order
company in making that vision a reality. to foster a culture of change and
These practices are: innovation in the firm.11
Transformative vision. A strong
IT-Business relationships. Digital
vision helps to frame in people’s transformation is about re-defining
minds a picture of how the company big parts of the business, and IT
will be different in the future. It also is essential in doing it. In some
helps people understand what companies, the CIO is the perfect
former assumptions may no longer
be valid. Executives in the French
yellow pages, Pages Jaunes, seeing
their traditional print model lose
10% of revenues annually in the
face of digital search competitors
like Google, re-envisioned their
business. CEO Jean-Pierre Remy
helped employees understand they
were not in the business of producing
heavy yellow books. They were in
12Digirati make strategic Figure 7. Focus on Excellence
choices on where to excel
digitally
To understand how Digirati distinguish FASHIONISTAS DIGIRATI
themselves in digital intensity, we
examined six digital intensity domains: 11%
33%
customer experience, social media, 39%
mobile, customer analytics, process 19%
digitization and internal collaboration
70%
(See figure 8 overleaf). 27%
Our analysis of these capabilities
yielded two important findings. First,
although both Digirati and Fashionistas
have strong digital intensity, Digirati
BEGINNERS CONSERVATIVES
distinguish themselves by excelling in
one or more areas (See figure 7). 2% 2%
11%
Two-thirds of the Digirati exhibit one
18%
or more domains of excellence. 70%
of Fashionistas have none, despite
comparable average levels of digital
intensity. This gap is even more 87% 79%
significant compared to Conservatives
and Beginners.
No Excellence Mono Excellence Multi-Excellence
Note: charts represent percentage of companies that exhibit Excellence in one or more of the six digital
intensity domains. We define excellence as an average score > 6 (on a 1-7 scale) on all questions of a
given domain, after dropping the question with the lowest score.
13Second, there are clear patterns exploit synergies between them. Figure
in how and where Digirati invest 8 illustrates patterns we identified
in these domains. Though every between the six domains, plus data
company’s journey is unique, certain integration. Although not an end in What do you want to
combinations of investment appear its own right, data integration is – not be famous for? Where
to be complementary. Companies surprisingly – an important enabling
seem to combine digital capabilities to capability for a number of domains. to start? What to do
next?
Figure 8. Most Common Linkages Between Domains of Excellence
CUSTOMER-FACING PROCESSES OPERATIONAL PROCESSES
Social Media
- Monitor reputation
- Promote products and services
- Sell products and services
- Provide customer service
- Build customer communities Analytics Process Digitization Internal Collaboration
- Target marketing more - Automating processes - Active knowledge sharing
effectively - Monitoring operations in - Use of internal social
- Personalize marketing real-time networks and video
communications - Adaptability to external conferencing
- Optimize pricing changes - Working anywhere, anytime,
- Better qualify sales prospects any device
Customer Experience
- Ensure cross-channels -
consistency
- Personalize the customer
experience Data Integration
- Offer self-service
- Customer Data
- Other data (finance, supply-chain, operations)
Mobile Channel
- Promote products and
services
- Sell products and services
- Provide customer service
Executives can use this model to build What do we have that our peers While Burberry started with the left
their digital vision and define their digital don’t?… And we did have a number of our model and moved to the right,
transformation journey: What do you of key differentiators in the luxury other firms go the other way. Indian
want to be famous for? Where to start? sector we could exploit.” Building on paint manufacturer Asian Paints
What to do next? A careful analysis of these strengths, Burberry decided to started with process excellence and
the company’s strategic assets can transform its customer experience, moved leftward. Manish Choksi, CIO
help answering these questions. both in-store and online, including and Head of Strategy, explained: “in
advanced customer interactions in the early 2000s, our focus was on
For example, when Burberry initiated social media. Internally, Burberry rolled internal efficiencies. We implemented
its transformation journey in 2006, the out a large ERP program to improve a traditional enterprise-wide ERP and
management team identified how to data integration and find ways to excel advanced supply chain. This was the
build on its strategic assets to succeed in operational processes. According to basis for further improvements in sales
in the digital world. According to Ahrendts, “we wanted to be as admired and customer processes.”12
CEO Angela Ahrendts, “we began to and respected for the back end of our
develop our five-year strategy, asking: business as for the front end.”
14In both cases, strong data integration reaching new customers, linking
is critical to linking customer-facing and operational and customer-facing
operational processes. Analytics are processes in new ways, and even
often considered the next important Digirati are far better launching new businesses. Digirati
game changer. Companies mastering than other types of often engaged in more than one
these domains have many strategic change. For example, when Volvo
options both on the customer and firms at changing their developed automobile connectivity
operational sides. In the mid-2000s, business models. features, a key goal was to deliver a
Caesars Entertainment developed better experience to clients: drivers can
analytics excellence that helped it to use a smartphone to lock the car, start
offer highly personalized customer the heater remotely, or locate the car,
experiences to its clients both online or buy roadside assistance and theft
and in its facilities (See page 16). In Figure 9 shows the extent to which protection services.13 But customer
the early 2010s, Caesars extended its companies in each quadrant are able experience was not the only objective.
excellence to the mobile channel by to execute these changes. Digirati are Connectivity brings Volvo closer to
providing new services and information far better than other types of firms at end customers who traditionally had a
and even engaging in personalized changing their business models. They relationship only with dealers. It enables
location-based marketing. are able to link their implementation Volvo to augment its traditional B2B
capabilities and leadership capabilities model of selling cars to dealerships
Transforming Business to fundamentally transform how the with a B2C model of interacting directly
Models company operates. Companies in other with customers.
quadrants are less able to do so.
Changing customer experience or
operational process – two key elements The business model changes we
of digital intensity – is difficult. Changing analyzed included topics such as
a business model or globalizing adding value to products and services,
a company is even more difficult.
Figure 9. Business Model Changes
Percentage of companies in each quadrant achieving business model changes through the use of digital technologies
FASHIONISTAS DIGIRATI
10%
20%
38%
20%
70%
42%
BEGINNERS CONSERVATIVES
4%
11%
17%
96% 72%
Little business model change Some business model changes Extensive business model changes
(average score 6 on a 1-7 scale)
15Caesars Entertainment:
Creating the Data-Driven Mobile Experience
after 6 p.m., we could send you an offer associated with a Jerry Seinfeld show
for the Bette Midler show,” explains promotion, directing them to a video
Neal Narayani, director of e-mail and about the show and a website where
mobile marketing for Caesars. “We they can buy a ticket.
Global resort and gaming firm Caesars
might have some additional show
is a leader in improving customer According to one executive, “Most
tickets left over, so knowing where the
loyalty and revenues by enhancing decisions with our guests happen on
customer is, is a great way to get those
customer satisfaction. For more than the casino floor. That’s where you have
tickets pushed.”15
a decade, the firm’s award winning14 to reach them.”18 Every phone in the
loyalty program, Total Rewards, has Apps: Caesars’ apps put more of its pocket of a Caesars guest represents
used analytics to deliver an extremely services at guests’ fingertips during a unique opportunity to deliver
personalized experience for its their stay. The myTR app allows Total personalized service. Monica Sullivan,
customers. Now, Caesars is extending Rewards members to keep track of VP of Advertising, explained, “There
its data-driven approach with mobile. special offers, manage reward points will continue to be more opportunities
and even book rooms. The firm’s Las with mobile devices to engage with our
Texpress: Upon arrival at one of
Vegas or Atlantic City apps provide
16
guests both when they plan travel and
Caesars’ 40 properties, guests that have
access to a mobile concierge, real-time while travelling.”19 “Social, local, and
opted into Caesars’ Texpress service
event information, in-room dining, and mobile are huge areas of innovation
are invited to check-in via SMS. They
even wake-up calls. and places to win.”20
can bypass registration lines and get
their keys at the bell desk. Texpress also Linking mobile and other channels:
combines mobile location data and SMS Caesars has optimized its website to
to deliver timely and relevant special make mobile access “sleek and easy
offers. “If you’re at Paris, we could send to navigate.”17 It is now integrating
you two free admissions to the Eiffel mobile and physical promotions. For
Tower ride or if you’re at Caesars Palace example, a guest may scan a QR code
16Conducting Your Own
Digital Transformation
CEOs and other senior executives are A critical input to driving change is organizations do business. Companies
increasingly asking practical questions a transformative digital vision. in other sectors, where the pace
about what digital transformation Without a vision of change, employees of change is less rapid, have the
means for their businesses: How and tend to do what they have been opportunity to create value by adapting
where do I start? How do I compare doing for years, even if it is no longer their business models – adding value
with my peers or versus best practices? useful in the digital world. Executives to products and services, reaching
Where do I invest? Although there is no typically build visions with a focus on new customers, linking operational
one-size-fits-all approach, our two-year operational effectiveness (inside-out), and customer-facing processes in
research program provides some useful superior customer experience and new ways, and even launching entirely
pointers for successfully executing sales (outside-in), or a combination of new businesses.
a digital transformation. Conducting the two. P&G, for example, uses a clear
your digital transformation requires inside-out vision: “Centralization and High-performing companies have
taking action in four key areas: framing, digitization will improve productivity strong enterprise-level governance
investing, engaging, and sustaining. and create deeper, more sustainable around their digital initiatives. These
organizational capabilities.”21 Whatever governance mechanisms aim to
Frame the digital the focus, the senior team should increase the level of coordination and
have a common vision of how sharing across silo-run digital initiatives.
challenge Three key governance mechanisms
to proceed. Only then can they
As with all transformation, CEOs first help to drive change throughout are common: dedicated committees,
need to ensure that their senior leaders the organization. shared units, and new roles including
have a common vision of how to Digital Czars. P&G created a shared
proceed. They need to understand why Focus Investment digital unit to accelerate the diffusion
to change, and how the future will be of digital services across the global
better than the current situation. To make the digital vision a reality, brands. Starbucks recently hired a
executives must ensure their Chief Digital Officer (CDO) to create
The first step is to understand the organizations invest in the right synergies among the many ways the
threats and opportunities that digital areas. This requires cutting back in company engages customers.
represents to the organization. Will unproductive areas while ramping up
existing ways of working continue to be investment where it needs to occur.
effective in a digital world? Are there Digirati differentiate themselves by
new opportunities available in customer excelling in a few areas – customer
experience, operational processes experience, social media, mobile,
or business models? Assess your customer analytics, process digitization
or internal collaboration – but rarely in
Conducting your digital
firm’s digital maturity – both digital
initiatives undertaken and leadership all. Executives must identify where transformation requires
the company should excel now,
capabilities to drive transformation.
based on its existing capabilities and
taking action in four
Then, you can take steps to move
depending on your current maturity strategic assets. Then, as capabilities key areas: framing,
improve, they can refocus toward new
level. For example, Conservatives
areas of excellence.
investing, engaging,
need to energize the organization to
engage in valuable digital opportunities. and sustaining.
Fashionistas, on the other hand, An important question is to decide if
should aim to rationalize a myriad you need to adapt your business
of digital initiatives and add proper model. In some industries, there is
transformation management practices no choice. The structural changes
to unite functional silos. in postal services, for instance, are
calling for a radical rethinking of how
17Engage the organization at Sustain the transformation Finally, no transformation can be
scale Successful digital transformation is
planned fully in advance. As they
proceed in their transformation and
Putting the organization in motion built on a foundation of core skills
better understand the impact of
early is essential. CEOs and top and capabilities. Although more than
digital, executives should look for
teams of digital leaders often send half of the executives we surveyed
opportunities to iterate and improve.
an unequivocal signal that change believe their firms have the necessary
Executives at Asian Paints started their
is necessary, and that it needs to digital skills, nearly all believe that they
transformation by unifying information
start immediately. The CEO of L’Oréal need to improve in some areas. To
and centralizing basic order taking.
declared that 2010 was the “Digital fill skills gaps, consider hiring some
This created new opportunities to
Year.” L’Oréal’s CMO explained: “That experienced executives who can
refocus the role of salespeople and
year was therefore one of intense make an impact quickly and coach
to rethink the way that factories were
effort … with strategic digital initiatives existing employees. Redesign your
managed. These changes opened
impacting all of our 23 brands in all training programs to develop skills your
up new opportunities to sell new
countries.”22 Leaders can use a wide company needs, such as Intel’s “Digital
types of services and to reduce the
array of digital channels, such as IQ” program that trains and certifies
risk of expanding beyond the firm’s
broadcast, web, video, and social employees in social media.25 Where
geographical base in India. Each
networks to generate continuous useful, partner with vendors to gain
investment, each year, and each
two-way communication at scale. skills and cross-sector experience that
new technology creates new ways
Richard Branson, CEO of Virgin Group, complements your capabilities. Some
to transform the business for those
encourages customers to get in touch companies even acquire small firms
executives who take time to envision
with him through a custom hashtag on to gain specific digital skills such as
and act on the possibilities.
Twitter.23 mobile marketing or analytics.
Equally important is to encourage Beyond skills, executives must focus
employees to identify new on building and sustaining momentum
practices and opportunities that for change. Quantify and monitor
will advance the vision. Technology progress toward the digital ambition No transformation can
through KPIs or digital scorecards.
firm EMC runs an annual innovation
Scorecards such as these have power
be planned fully in
competition through which employee
teams can suggest new initiatives. beyond just measuring the impact advance.
Retailer Sainsbury runs a panel of of major investments. They help to
more than 2,000 employees who give change the culture. For example, Prisa
feedback every month about key issues uses a transformation index to drive
affecting the organization.24 accountability and cooperation across
all employees in the organization.
18Nike:
From Separate Initiatives to Firm-Level Transformation
‘Here’s some product, and here’s Connecting digital silos: Nike was
some advertising. We hope you like it.’ innovating successfully in silos, but
Connecting today is a dialogue.” 26
missing potential synergies between
them. In 2010, Nike created a division
Nike, the world’s leading maker of Mass-customizing products:
called Nike Digital Sport. The new unit
athletic shoes, apparel, equipment, Nike’s custom shoe offerings allow
provides skilled resources, budget, and
and accessories, has traditionally built customers to design and order shoes
coordination across the enterprise.29
its business through a combination of online, share designs with friends, and
The goal was to create a unified
strong innovative products, intensive vote on others’ designs. These social
consumer experience that can respond
brand-building, and efficient operational media capabilities enable customers to
to – and even shape – rapidly-evolving
processes. As new digital innovations engage with the product online before
consumer preferences. The unit now
appeared, Nike was fast to capitalize in and after they buy. And listening to
leads most customer-facing digital
all three areas. these online conversations allows Nike
projects, releasing products under
to identify popular designs and sense
Social Media: Nike entered social the Nike+ brand. Teams of marketers,
new trends.27
media by building a presence on major designers and IT people work together
social media platforms around the Digital product design: Nike started
to develop digital innovations. They are
world, and then by launching social sites using 3D design tools to create new
also finding ways to mine mountains
dedicated to specific sports, products, products in the early 2000s. It then
of highly accurate customer data – a
or major events such as the soccer diffused digital design and collaboration
key strategic asset for marketing and
World Cup. Nike then went much farther capabilities to the whole supply chain.
product development in the highly
by developing the Nike+ concept for The transition did more than improve
competitive digital space. Looking to
runners. Nike+ monitors and tracks the firm’s design capability. It also
the future, Nike plans to become ever-
each workout by connecting sensors in supported sustainability policies and
closer to each of its customers around
shoes with devices such as the iPhone appealed to younger designers who
the world.
and an internet platform. Runners can expected digital design capabilities.
share their performance online and CEO Parker explained “Materials,
even receive customized advice from componentry, construction methods,
coaches. Meanwhile, Nike gathers manufacturing methods, the whole
detailed data about how customers digital revolution … We are embedding
use its products. According to CEO all that thinking into the product.”28
Mark Parker, “Connecting used to be,
19Conclusion
The pace of technological change is accelerating, and executives in every industry
are paying attention. They face a vast set of alternatives for gaining digital advantage.
Unfortunately, they also hear a bewildering barrage of advice – sometimes conflicting No firm is immune
and often wrong – about how to move forward digitally. In our two-year study, from digital
we discovered that many common perceptions about digital transformation were
actually myths (See figure 10). These myths can lead executives to make unfortunate transformation.
and costly decisions.
Figure 10. Myths and Realities of Digital Transformation
Myth Reality
1 Digital is primarily about the customer experience Huge opportunities exist also in efficiency,
productivity and employee leverage
Digital primarily matters only to technology Opportunities exist in all industries with
2
or B2C companies no exceptions
Let a thousand flowers bloom; bottom-up activity
3 Digital transformation must be led from the top
is the right way to change
If we do enough digital initiatives, we will get there Transformation management intensity is more
4
important for driving overall performance
Digital transformation will happen despite our IT Business/IT relationships are key, and in
5
many companies they must be improved
Digital transformation approach is different for Digital Leaders exhibit a common DNA
6 every industry and company
In our industry we can wait and see how There are digital leaders outperforming their
7
digital develops peers in every industry today
Fortunately, our global survey of nearly 400 large firms, supplemented by 157 in-depth interviews with senior executives in
more than 50 large companies, provides fact-based answers. First, digital maturity matters. Digirati are statistically significantly
more profitable than their competitors, and the markets reward them. Second, no firm is immune from digital transformation.
Every company in every industry already has competitors who are Digirati. Since it takes time to become digitally mature, senior
executives in every industry should take active steps immediately to consider the opportunities and threats available through
digital transformation. Finally, once you decide to act, you can map a strategy for your digital transformation based on common
transformation patterns distilled from the most digitally mature firms in our research.
The future is arriving quickly. Take action now to create your own digital advantage.
20About the Research
Last year, we set out to understand
how leaders in large traditional Figure 11. Sample Metrics
companies were gaining advantage
from digital technology. We identified a. Industries
what companies are doing digitally, and Others 10% Banking 8%
what it means to be digitally mature. Government 8% Insurance 7%
That study resulted in a research Other Financial
Oil, Gas and 2%
report, “Digital Transformation: Services 2%
Chemicals
A Roadmap for Billion-Dollar
Utilities 6% Telecoms 6%
Companies”30 that was named one
of the five most influential thought High Technology
Travel and 5%
leadership papers of the past decade.31 Hospitality 7%
This year, we set out to quantify Manufacturing
the findings – to benchmark digital Transportation 3%
14%
and Logistics
practices around the globe, to identify
the most essential components of Retail 7% Pharmaceuticals
digital maturity, and to examine the 8%
links between digital maturity and Consumer 7%
financial performance. We gathered Packaged
surveys from 469 senior executives in Goods
391 large companies around the world.
b. Company Size
(See figure 11). Greater than Less than
$20 billion $500 million
We analyzed the surveys to identify
18% 19%
detailed drivers of digital maturity, and
classified firms in two dimensions.
$10 billion - $500 million -
Then, we went one step further. $999 million
$20 billion
For each of the 184 publicly traded 11%
11%
companies on our sample, we obtained
2011 financial performance from $1 billion -
$5 billion -
COMPUSTAT, converted all figures to $9.9 billion $4.99 billion
US Dollars, and calculated standard 30%
11%
financial ratios such as EBIT margin,
Revenue per Employee, Price/Book
and Fixed Asset Turnover. Then,
controlling for industry and geography, c. Respondent Titles
we conducted rigorous statistical Other
CEO, President
analysis to establish the relations 18%
11%
between digital maturity and financial
performance. We then conducted a CFO
Other Director 2%
separate analysis to quantify average 23%
financial performance gaps between CIO, CTO,
the four digital maturity quadrants. Head of
Technology
The findings from our statistical 22%
analyses, supplemented by our earlier
CMO
qualitative research and additional
5%
interviews, serve as the basis for the
findings and recommendations in
SVP, VP, Other
this report. C-Level Executive
17% COO
2%
21About the Authors
George Westerman, a Research Scientist in MIT Sloan’s Center for Digital Business (CDB),
is also faculty chair for the MIT Sloan executive course Essential IT for the Non-IT Executive.
George’s research examines the role of executive leaders in driving competitive advantage
from digital technology. George is co-author of two award-winning books, The Real Business
of IT: How CIOs Create and Communicate Value, and IT Risk: Turning Business Threats into
Competitive Advantage.
Prior to earning his Doctorate from Harvard Business School, he gained more than thirteen years
of experience in innovation and technology management.
georgew@mit.edu
Maël Tannou is a Managing Consultant at Capgemini Consulting. He has worked for the last
five years at the Paris Office and is currently a visiting scientist at the MIT Center for Digital
Business, working with the researchers.
He is specialized in Digital Transformation, and graduated from the French business school
Audencia.
mael.tannou@capgemini.com
Didier Bonnet is Senior Vice-President and Global Practice Leader at Capgemini Consulting.
Didier has more than 25 years’ experience in strategy development, globalization, internet &
digital economics and business transformation for large multinational corporations and private
equity firms. He has authored several research articles and is regularly quoted in the press e.g.,
WSJ, FT, the Economist and provides commentary for broadcasters such as the BBC, CNN,
Reuters and CNBC.
Didier graduated from a French Business School and holds a DPhil from Oxford University. He is
based in London.
didier.bonnet@capgemini.com
Patrick Ferraris is the Global Leader of the Technology Transformation practice at Capgemini
Consulting. With over 20 years of consulting experience, Patrick has supported large
multinational organizations in their digital strategy and transformation with a focus in Telecom,
Media, Internet, Insurance and Transportation.
He is an alumnus from M.I.T and Ecole Nationale des Ponts & Chaussées.
patrick.ferraris@capgemini.com
Andrew McAfee, a principal research scientist in MIT, studies the ways that information
technology affects businesses. He coined the phrase “Enterprise 2.0”; his book on the topic
was published in 2009 by Harvard Business School Press. He has also held appointments as a
professor at Harvard Business School and a fellow at Harvard’s Berkman Center for Internet and
Society. In 2008, he was named the 38th most influential person in IT.
amcafee@mit.edu
Jérôme Buvat and Michael Welch, from Capgemini Consulting, deserve a special mention for their outstanding
contribution in helping to put this research paper together.
We would like also to acknowledge the invaluable support of a number of colleagues at Capgemini Consulting who
have either helped with the data collection or have contributed with their ideas and insights. They are too numerous
to mention individually, but you know who you are. A warm thank you from the research team.
22You can also read
