The vision thing: digital intensity and transformational excellence define the global leaders

This is what success looks like for global market incumbents: growing revenues, higher profits and stronger valuations.

Last year a comprehensive study by Capgemini and MIT Sloan quantified the digital delta. It found that large organisations which marry digital intensity with transformational excellence outperform their peers across all industries in terms of revenue, profit and market valuation.

And last week’s story by Michael Gill about the closure of Reuters Next called Digital Fatalism is fatal: Why the surprise?  served as a timely reminder of the importance of leaders focusing on the mission, not fashion in digital transformation

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(Report Authors: George Westerman, Mael Tannou, Didier Bonnet, Patrick Ferraris, and Andrew McAfee)

Which-50 caught up with Ben Gilchriest, Capgemini director and digital transformation venture lead, last week. Gilchreist reinforced the study’s finding about the importance of corporate leadership. And he said that, in Australia, too many companies still think of digital only in terms of channels.

But first a recap. Called “The Digital Advantage, how digital leaders outperform their peers in every industry,” Capgemini’s two-year study covered over 400 large firms and found most of them already well engaged with the digital journey.

The study found that companies deliver digital intensity by investing in technology-enabled initiatives that change their engagement with customers, their internal operations, and even their business models.

Transformational management intensity, meanwhile, involves creating the leadership capabilities necessary to drive digital transformation in the organisation. “Transformation intensity consists of the vision to shape a new future, governance and engagement to steer the course, and IT/business relationships to implement technology-based change.

Where the Capgemini report really excelled, though, was in hard-coding the economic value that digital transformation offers to companies.

The Digerati — the 25 per cent of firms that are more mature in both dimensions (digital intensity and transformation) — far outperform the others. On average, Digerati are 26 per cent more profitable than their industry competitors. They generate nine per cent more revenue through their employees and physical assets. And they create more value, generating 12 per cent higher market valuation ratios.

The study found many companies using social media, mobile, analytics and embedded devices, but it said few firms were yet to capture the real business benefits. “Our research points to a real ‘digital advantage’ to those that do.

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(Image: Myths versus reality: Source: Capgemini)

They combine a transformative vision, careful governance, and engagement, with sufficient investment in new opportunities. Through vision and engagement, they develop a digital culture that can envision further changes and implement them wisely. Digerati make strategic choices on where to excel digitally.

The vision thing

Vision is the magical elixir that separates these organisations from their peers, who may be extracting partial benefit from new digital initiatives or organisational change. This vision energises employees to make change happen.

Gilchriest told Which-50, “Leadership is essential. If you look at the companies that reside in the ‘Digerati’ quadrant they display two principal, common patterns that drive their success: They focus 100 per cent on the ‘how’ by making sure they get it right across the vision, governance, the IT/business relationship, and engagement with their people; And they make strategic investments on where to excel — whether that be in social media and data analytics or how they manage their supply chain or use of enterprise social networks. Doing well in both of these requires strong leadership.

Too many companies, particularly in Australia where Gilchriest is based, place too much regard on digital as a channel play. “That’s done because the market or customers demand it, rather than any real belief that it will enable the achievement of the corporate strategy. A good example of the manifestation of this is when companies create a ‘digital strategy’.

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(Image: Capgemini director Ben Gilchriest. Source: Linkedin)

There should be only one strategy: the corporate strategy, which is enabled by digital, says Gilchriest. He says that recognising and acting upon this is critical to embarking on any digital transformation to deliver real advantage over the competitor.

Of course most companies do not make the Digerati cut, and the Capgemini study identified three other quadrants of digital maturity across the digital intensity and transformational axis:

  • Digital Conservatives favour prudence over innovation, says the report. “They understand the need for a strong unifying vision as well as for governance and corporate culture to ensure investments are managed well, but they are typically skeptical of the value of new digital trends, sometimes to their detriment.
  • Digital Fashionistas have implemented or experimented with many fashionable digital applications. Some of these initiatives may create value, but many do not, say the authors. “While they may look good together, they are not implemented with the vision of gaining synergies among the items. Digital Fashionistas are motivated to bring on digitally-powered change, but the digital transformation strategy is not founded on real knowledge of how to maximise business benefits.
  • Digital Beginners do very little with advanced digital capabilities. Although they are digital laggards these companies may be mature with more traditional applications such as ERP or electronic commerce, according to Capgemini.

Companies may well exhibit characteristics of several quadrants with different levels of maturity found in different organisational silos, Gilchriest suggests.

It’s very common to find differences between departments or divisions. For example, the marketing department might be pushing ahead on lots of different social media platforms or mobile apps while investing in new initiatives online,” he says. “Meanwhile, the IT department may be exploring the use of cloud or BYOD, or mobile enablement for employees. There might even be a ‘digital’ division, which is exploring lots of new ideas and applying a strict governance to what it is doing.

However, these characteristics are only in each department, he says, while at an aggregate level the organisation will sit in just one quadrant. “If we take the scenario I’ve given, the organisation as a whole might do well on ‘Digital Intensity’ (what it is doing) — but since the vision, the governance, the IT and business relationship, and employee engagement are not being managed across the organisation in a unified way, the transformation intensity (‘how’ you manage digital) would be low. Companies that take this approach will really struggle to realise a digital advantage.

He offers the experience of Australian retailers as an example. “Digital is often seen as a way to create new channels to engage with customers in an unmanaged way. That’s not to say that this approach won’t make a difference. It does drive revenue, but our study shows that it’s an inefficient way to get value out of digital so it’s often at the expensive of net profit and market valuation.

The study also drilled down into other verticals. IT and telcos, not surprisingly, tend towards the gold quadrant, although telcos can be hamstrung by regulation and legacy infrastructure. At the other end of the scale, the study found the manufacturing sector and pharmaceuticals still at the start of the journey.

The high-tech sector does well because, as an industry, it’s used to managing technology and applying it to extract value. The telcos have been quick to respond, which isn’t that surprising given that at their core they are technology companies,” says Gilchriest, who points out that the study found “Beginners” are virtually non-existent in this sector.

The challenge that pharmaceuticals are grappling with at the moment is determining how far they can go without falling foul of regulation. As an industry, they’ve treated digital as a minor component of their commercial strategies and marketing plans.

Regulation is part of the problem. “Particularly here in Australia, regulation only allows interaction with end customers under strict conditions.

However, he says there is a place for digital in the industry — such as enabling interaction with intermediaries (prescribers, pharmacies, government et cetera), or even indirectly with patients. “Or (companies) could use customer usage data from open social networks to help understand the real-world application and usage of prescribed drugs.

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(Image: Digital maturity by industry. Source: Capgemini)

The travel and music industries were smacked early by digital disruption and, as Capgemini notes, they have already undergone profound transformation. The report says these industries still have more challenges ahead, but progress is solid. “More than 80 per cent of travel and hospitality firms are Digerati or Fashionistas, and there are no Beginners in the industry.

Ecommerce spurred major transformations in the financial services and retail sectors in the last decade, and they are now starting to innovate with technologies such as social media, mobility and analytics. “Retailers surprisingly look more like utility companies in their digital maturity profile than like faster-moving technology companies.” On the upside, the report says the large number of Conservatives in retail have already built transformation management intensity by managing technology investments, which augurs well for a move into the Digerati quadrant should they increase their digital intensity in newer technologies.

The Pinstripes of the banking sector have found a home amongst the Digerati set. “The bankers’ Digerati status may be because digital features such as online or mobile banking are good for both banks and their customers. Digital offerings provide convenience to customers, while serving as lower-cost channels for the banks.

Insurance and utilities companies are found in the Conservative quadrant, and the report says that many are being held back by regulatory concerns or difficult organisational legacies. Utilities, in particular, may be hindered by a cultural or regulatory posture which rewards cost reduction rather than broader innovation.

Across the sectors, the study noted that all the Digerati invest in the elements of transformation management — vision, governance, and engagement — and perform well on the digital intensity dimension. “But Digerati status is more than simply a combination of sound management and digital capability — there is something inherently different about Digerati DNA that separates them from the rest.

The report highlighted how the Digerati make strategic choices about how they will be excellent in digital intensity. “They build their digital intensity through a set of common patterns that exploit complementary capabilities to deliver ever-greater levels of digital value.

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