2019: The year of digital decisions
With digital transformation sweeping across companies and industries, 2019 will be a year of decision-making and profound change. Companies overwhelmingly recognize that digital transformation is now a requirement for them to compete and succeed. Most are determined to take the next steps in their transformational journeys to drive growth and better business outcomes.
Read below or download to see the complete survey results (PDF).
“Technological competitiveness means we can think about our IT, business and data architecture in more interesting ways.”
Zaka Mian, group director of transformation, Lloyds Banking Group
“Technological competitiveness means we can think about our IT, business and data architecture in more interesting ways,” says Zaka Mian, group director of transformation at Lloyds Banking Group. “If this is what we’re trying to do strategically with our customers, then how does our architecture, in all its guises, mesh with that?”
Digital transformation entails bringing information into the fabric of every transaction with a client, partner, employee or process. To do so, digital enterprises should deploy new tools, communities, ecosystems and a technology platform that enables rapid information sharing.
To explore how companies are achieving digital transformation and what strategies they hope will help them attain it, The Economist Intelligence Unit conducted a global survey of more than 600 board and C-suite members and other top executives at companies with annual global revenue of US$500m and above.
Our survey findings highlight digital transformation as perhaps the most rapid, dramatic and sophisticated effort at reinvention that major businesses have attempted in many decades, and their strong commitment to making it happen.
Sixty-eight percent of respondents say their organization’s annual profitability has increased over the past three years thanks to its digital strategy and 74% say they expect it to rise over the next three years.
“We strongly believe that we can make the customer experience easier and simpler while leading to better outcomes through digital technology, and that will continue to drive our market share,” says Neesha Hathi, executive vice president and chief digital officer at Charles Schwab. “Digital transformation also helps us scale our services while driving down costs for our clients.”
The vast majority of companies plan to increase their investment in digital technologies in the coming year: 83% of respondents expect their organization to do so, with 41% looking at an increase of 11% or more. What they plan to do with that investment represents perhaps the most dramatic finding of our study, however.
At present, 52% of respondents have digitally enabled three key organizational functions, according to the research. But within the next three years, companies across industries, geographies and size groups intend to greatly ramp up their efforts, with the result that at least six of the ten functions asked about in the survey will be digitally enabled at well over half of all companies. Business units, management, strategy and R&D/Innovation are the areas that will see the greatest progress.
Accompanying this vast change is a parallel—and rapid—drive to harness more sophisticated technologies. Thirty-six percent of survey respondents say that artificial intelligence (AI) and machine learning (ML) have played a significant role in their organization’s digital strategy and 45% say it will do so over the next three years. Meanwhile, companies are assigning less importance in their future plans to more familiar digital tools and processes, such as the internet of things (IoT), social media and collaborative tools, many of which are already fully integrated into their business strategy.
What do companies aim to achieve by digitally remaking themselves—functionally and business-wise—and by racing to up their analytic game virtually simultaneously? To find out, our survey took a closer look at their goals, the deficiencies they still have to overcome and the cultural changes they need to implement.
A competitive game-changer
Survey respondents cite many ways that digital transformation can improve their creativity, efficiency, profitability and, ultimately, their competitiveness. An overwhelming 75% say it will lead to greater agility, and 76% report that a modern digital IT infrastructure better positions their company to produce value for its stakeholders.
Companies based in developing regions (Brazil, Mexico, UAE and South Africa) in particular appear to believe that digitally enabling more of their functional and business areas will help them leapfrog into a more competitive position vis-à-vis their European and North American rivals.
Greater creativity, efficiency and agility all help to augment your company’s brand, wherever it is based—a key concern at a time when digital transformation is disrupting many long-time, powerful brands.
“Always, it’s brand-value focused,” says Jon Carney, CDO EMEA at McCann Worldgroup, of his firm’s work with its communications and marketing clients. “What is the meaningful role for brands in a digital economy?”
Companies need a strategy that enables them to add value by bringing data and analytics together in ways that directly address clients’ needs. Most are still in the early stages of adopting and implementing such a strategy, however. Nearly 60% of survey respondents say such a strategy has been in place for two years or less at their organization. Operations is the only area in which more than half of survey respondents (51%) say their organization is digitally enabled, and only finance (48%) and sales and marketing (45%) come close. A mere 30% say their business units are digitally enabled. The figures are consistently lower for companies that have had a digital strategy in place for two years or less.
“A CO-OPERATIVE ECOSYSTEM”
“We don’t have a separate digital strategy… We have a strategy that sits in the digital world throughout our business.”
Jon Carney, CDO EMEA, McCann Worldgroup
But all survey respondents say they are making rapid progress—and expect it to continue. Already, three-quarters of companies say their digital strategy is central to their business strategy, and the figures run even higher in financial services, technology and manufacturing.
“We don’t have a separate digital strategy,” says Mr. Carney. “We have a strategy that sits in the digital world throughout our business.” The firm has CDOs or senior management teams focused on digital transformation regionally and globally, which are responsible for incorporating it into product and service development, and a half-dozen centers of excellence around the world that work with business leaders and creative teams in each region. “It has to be a co-operative ecosystem,” says Mr. Carney, with the CDO focused on strategy and working highly collaboratively with marketing specialists in each area.
Digital and business strategy formulation are completely or almost completely aligned at 72% of companies, survey respondents say, and the figures are similar for planning cycles and implementation (75%). But even this does not fully capture the transformation that companies expect to make across every aspect of their organization in the next three years. As we noted earlier, in only one area—operations—do even half of companies claim to be digitally enabled today, and just barely.
In the next three years, all of this is expected to change. Seventy-three percent of companies expect operations to be digitally enabled, followed by finance (69%), sales and marketing (68%), management (66%) and strategy (64%). Over half (58%) say their business units will be digitally enabled.
PRIORITIES: IT DEPENDS
Digital transformation encompasses multiple technologies and process changes, however, from cloud computing to IoT to advanced processes like AI and ML to consumer and client services like mobility, applications modernization and social media.
The aspects of digital strategy companies will emphasize over the next three years depend heavily on the industry, size and location of the individual company. Financial services companies are more likely to stress AI/machine learning (57%) and blockchain (51%) while, for manufacturing companies, cloud computing (50%) and IoT (48%) are especially important.
Social media will be a somewhat higher priority for retailers than for other industries, given the importance to them of developing digital channels for sales and marketing. These tools play a growing role at marketing and communications firms as well.
“Messenger portals, especially, give us the opportunity to develop relationships in interesting ways,” says Mr. Carney. McCann Worldgroup identified social optimization about a year ago as a key area in which to invest. “We’re able to tap into people’s passion points, whether it’s food, automobiles or beauty, and be part of that conversation. That’s already integral to a number of brands, and it wasn’t around five years ago.”
Digital strategy deficits
More than half of respondents (53%) agree that at their organization “digital strategy” is just a change in terminology from “IT strategy,” with no substantial difference.
Commitment doesn’t necessarily equal accomplishment.
Companies across the board are concerned about a wide range of potential stumbling blocks to implementing an effective digital strategy. More than half (55%) of survey respondents worry that they are not making optimal use of digital technologies within their organization. Surprisingly, financial services companies, reputedly among the most advanced at digital transformation, are especially concerned. And almost two-thirds (64%) of all respondents say their company is likely to be disrupted by competitors with superior digital strategies.
Not every company in every industry can or should move forward at the same pace, however, even when its customers and suppliers may be moving much faster. “Of course, we want to encourage change, but in healthcare, so many decisions affect the health and welfare of individuals,” says Kristin Darby, CIO at Cancer Treatment Centers of America (CTCA).
Nevertheless, when we explore the basis for survey respondents’ concerns, we see some troubling signs. Asked to select the top three barriers to implementing a digital strategy at their company, 40% of respondents cited security concerns, 35% cost or lack of funding and 33% lack of a tech-savvy workforce. Cost or lack of funding is an especially big concern at North American and Asia Pacific-based companies.
Whether companies are adequately equipped to tackle these problems and judge the success of their digital strategy going forward is doubtful as well.
Many survey respondents worry that their company’s digital strategy is not clearly differentiated from its other technology initiatives. More than half (53%) agree that at their organization “digital strategy” is just a change in terminology from “IT strategy,” with no substantial difference.
One reason for the absence of a clear strategic profile may be that many companies lack a strong, dedicated leadership focused on implementing it. Asked what areas will be most critical to their organization’s digital decision-making in the coming year, survey respondents place identifying and activating a digital leadership or task force dead last. The response is especially low for companies in developing markets, financial services companies and companies that have been implementing their digital strategy for less than two years. In no category—even technology/IT companies—was it notably high.
WHERE ARE THE KPIS?
Measuring their success at digital transformation is another deficiency at many companies.
One of the most valuable assets provided by digital tools and processes, especially AI and ML, Mr. Carney says, is the ability to measure the impact and efficacy of a product or service or, in McCann’s case, of a campaign. “It makes us more valuable to the client,” he says, “since we can link our work directly to the outcome.” Yet survey respondents place developing key performance indicators (KPIs) that reflect multiple stakeholders close to the bottom of their priority list for the coming year.
Digital transformation is as much a cultural as a technological endeavor, however, one that involves every level and facet of the organization. Seventy-two percent of survey respondents agree that a change in culture is necessary to digitally transform any organization. That figure is even higher for companies in developing regions and those that have implemented a digital strategy only in the past two years.
“There’s a cultural shift we have to make—changing the way we work, challenging us to do things differently—and that’s no mean feat for an incumbent organization,” says Zaka Mian of Lloyds Banking Group.
No two companies agree completely on how to create a culture that will successfully implement their digital strategy. Survey respondents consider the following elements to be essential:
- Treating risk, security and compliance as a key influence on design (51%)
- Defining digital strategy and direction (48%)
- Providing clear guidance and a clear explanation of the strategy and its impact on the organization (48%)
- Encouraging cross-functional collaboration (48%)
- Ensuring appropriate levels of data literacy in all roles (43%)
- Experimenting with new digital processes and solutions by beta-testing them with limited groups (41%)
EXECUTING DIGITAL STRATEGY AT LIGHTNING SPEED
Determining which elements are most important to your company will depend on the stage it has reached in its digital transformation. Companies that are further advanced—for example, those headquartered in North America and Europe and those in the financial services and manufacturing industries—tend to place more emphasis on encouraging cross-functional collaboration, possibly because this helps them to optimize the digital investment they’ve already made. Defining digital strategy and ensuring appropriate levels of data literacy, though, are cited more often as an essential element by Asia Pacific-based companies, which tend to be earlier in their digital development.
Cultural change is urgent particularly due to the speed with which companies plan to introduce new digital features and processes. Respondents named each of the following initiatives as being among the most critical in the coming year:
- Implementing wider business process or organizational changes the company’s digital strategy may require (38%)
- Introducing digital features into product offerings (e.g., the IoT, mobile tools) (34%)
- Increasing collaboration between functional and business areas (34%)
- Assessing and adopting new digital tools (e.g., AI, blockchain) (32%)
- Working with clients and employees to leverage digital offerings (31%)
- Recruiting more digital-savvy employees and consultants (29%)
- Having a strong commitment by the C-suite and board to lead development and implementation (27%)
- Becoming a more data-driven organization (27%)
- Adopting KPIs that reflect multiple stakeholders (24%)
- Identifying and activating a digital leadership or task force (24%)
“DIGITAL IN THEIR SOUL”
Companies need people who have the skills and mindset to help constantly retool their culture to create products and solutions with a stronger technology element. “We want digital talent who are deeply digital in their soul,” says Mr. Carney. “They need to have a broad understanding of communications, but the important thing is that they have a passion about digital solutions that we can all deploy and use.”
The range of digital experts companies need is widening. McCann, for example, hires data scientists, creative technologists who have technological training but also an understanding of the marketing field that enables them to work with producers, and social marketers who understand how to build platforms that appeal to consumers.
Accordingly, recruitment of digital-savvy employees is likely to remain a constant need. “Having the right talent, retaining and attracting it, will continue to be very high,” says Ms. Hathi at Schwab. “Even when the market turns, it will remain high.”
digital strategy rewarded
83% of companies expect to increase their investment in digital technologies in the coming year.
Digital transformation is a work in progress—and, for most, still a relatively new endeavor. Almost certainly, however, a great deal of your company’s future success is riding on it. Across geographies and industries, companies are looking to their digital initiatives to drive scale and efficiency. It is their ticket to either remaining competitive, reviving their competitive prospects or elevating themselves into industry leaders.
The Economist Intelligence Unit’s research revealed five key principles for companies adapting to the new landscape of digital transformation:
- Digital transformation requires cultural transformation.Seventy-two percent of survey respondents agree on this point. Transformation starts with clearly defining your digital strategy and ensuring the level of digital literacy at every relevant role that will enable it to succeed.
- Digital transformation requires investment.Companies recognize that making it work requires financial commitment: 76% of survey respondents overall agree that cost savings from IT services modernization can help fund their digital strategy, for example.
- Digital transformation depends on people.Recruiting digital-savvy employees and deploying them in roles where they are likely to have the greatest impact on their co-workers are essential to cultural transformation. Yet this appears to be difficult for many companies. As we noted earlier, a third of survey respondents cite lack of a digital-savvy workforce a major barrier to implementing their digital strategy.
- Digital transformation can’t be a headlong process.Be sure that at each step of transformation you are making optimal use of digital technologies and that innovations and older processes and systems mesh efficiently. Developing metrics to evaluate your progress is essential.
- Digital adoption does not stand still.Your competitors are already looking for the next, more sophisticated tool or process that could enable them to leapfrog the rest of their industry. You need to be doing the same.
Our research points to digital strategy as an increasingly important aspect of business strategy at an expanding group of companies—next year, in the next three years, and for a long time to come. Getting it right, however, will be a continuing challenge to ensure that digital investment turns into growth opportunities and better business outcomes for all those served by the enterprise.
About the research
In September-October 2018, The Economist Intelligence Unit surveyed 621 senior executives to discover where companies are in their digital development and what they want to achieve with it. The survey is sponsored by DXC Technology and Leading Edge Forum (LEF), DXC’s independent cross-industry think tank.
The survey sample comprises a senior group: roughly half (48%) of the respondents are members of the C-suite; the other half (52%) are directors and above (e.g., executive vice presidents, managing directors).
The survey is global in scope with companies ranging in size from US$500m to US$5bn or more in annual revenue.
Respondents are widely distributed across industries—healthcare, manufacturing, retail and insurance are the biggest sectors represented—and functions.
See the complete survey results and download 2019: The year of digital decisions.