Didier Bonnet, Andrew McAfee and George Westerman, The Financial Times, March 29, 2012
Digital transformation, the use of technology to radically improve the performance or reach of enterprises, has become one of the major issues taxing the minds and abilities of executives worldwide.
Organisations in all industries are using digital advances in analytics, mobility, social media and smart embedded devices (such as radio frequency ID tags - RFID) to change their customer relationships, internal processes, and value propositions.
Looking at just how fast digital technology has disrupted other industries, particularly their shell-shocked colleagues in the media industry, the corporate community has been given a clear wake-up call. To understand more, we interviewed some 160 senior executives confronting this challenge in 50 large billion-dollar organisations in 13 countries.
We quickly learned that organisations are facing common pressures and are therefore investing heavily in a common set of digital responses. However, even companies in the same industry investing in the same areas are getting wildly different results.
Digital efforts in many firms lack scale, are disjointed and are often the pet project of one silo within the organisation. However, there are a select few who are taking a different tack and see this digital challenge as an opportunity to truly improve their holistic performance across the entire company.
These organisations are approaching this digital transformation from the top-down and are aligning their efforts under a common vision and coordination structure. However, of the organisations we studied, less than a third is taking this strategic approach and truly reshaping their businesses through digital technologies.
While our research helped us understand how organisations are approaching digital transformation, we also looked at what areas they are transforming. We found that the use of analytics, mobile and social media are widespread in these large organisations to improve both customer experience and operational processes.
Analytics is used by 72 per cent of respondents, mobile and social media by 62 per cent of organisations, and embedded devices by 24 per cent, despite their relative nascence within most industries (see figure 1).
Applications of social media to improve customer experience are more common than for internal uses, reflecting awareness of the fact that consumers are rapidly adopting these technologies, as well as some scepticism about how effective they will be for internal collaboration.
The use of analytics too, is more common in customer experience applications, reflecting theincreasing efforts of organisationsto personally target marketing activities and personalise customer experiences better than in the past.
Mobile is also used widely in both domains but embedded devices are still an emerging technology, with less than a quarter of companies using these devices, although many executives can foresee ways to use the devices as they become cheaper and more reliable.
More important is the difference in how companies are using the technologies. While many companies are using these technologies achieve only incremental improvements, others are using these technologies as an opportunity to re-envision and radically improve their businesses.
Our study identified three levels of digital usage currently in place within major enterprises today:
• Substitution is using new technology as an alternative or replacement for substantially the same function that the enterprise already performs with a different technology and process. For example, BlackBerrys and iPhones acting as a substitute for PCs in both internal operations (email) and customer experience (web access).
Many employees use both methods depending on their needs at a point in time. Analytics, in the form of basic business intelligence tools and detailed reporting, substitutes for similar information sources available through other methods. Substitution is useful when it improves performance over, or is more convenient than, traditional methods.
• Extension is significantly improving performance or functionality of a process through technology. For example, a manufacturer providing full information to field workers on mobile devices, thus eliminating the need for workers to spend time in the office at the start and end of shifts. Or apharma company’s social media physician community enabling the company to learn about issues and opportunities by allowing doctors to talk with one another.
• Transformation is fundamentally redefining a process or function through technology. For example, a manufacturer using a combination of embedded devices and analytics to create fully-automated factories that deliver a higher level of efficiency, quality and environmental sustainability than manually-tended factories. Or a hospitality firm using predictive analytics to engage in location-based marketing with its customers.
The study shows that the most common usage of each technology is for substitution, for example mobile email replacing desktop email or Facebook pages and ads as a substitute for traditional Web advertising (see Figure 2). However, companies are making inroads in each of the three approaches.
Roughly 30 per cent of firms are engaging in extension or transformation with mobile, social media or analytics technologies. Although usage of embedded devices lags behind other technologies, some companies are already extending or transforming their processes through these devices. The researchalso shows an interesting trend toward identifying transformative opportunities that combine multiple technologies with new management practices. For example:
• Factories including both mobile and analytics technologies to improve production significantly.
• Mobile phones are increasingly being used as embedded devices for customer-facing applications.
• Retailers are aiming to integrate their social and web-based marketing approaches with digital product design capabilities and embedded devices in products to make themselvesmore responsive to emerging consumer preferences.
• Concept stores are combining multiple technologies to test or deliver a new buying experience.
Major technologies that developed in isolation are now maturing at the same time. This presents a major strategic opportunity for large firms in all industries. Forward-looking executives are beginning to envision possibilities that cross organisational and technological silos, letting the possibilities drive technology and organisation rather than the reverse.
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Didier Bonnet is a Senior Vice-President and head of global practices for Capgemini Consulting. He is responsible for the digital transformation global research programme.
Andrew McAfee is principal research scientist at the MIT Centre for Digital Business, MIT Sloan School of Management. He is a co-author, along with Erik Brynjolfsson, of the 2011 book “Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy.” He also wrote the 2009 book “Enterprise 2.0” (Harvard Business School Press).
George Westerman is a research scientist at the MIT Centre for Digital Business, MIT Sloan School of Management. George is co-author of two books on building competitive advantage from digital technology: “The Real Business of IT” and “IT Risk.”
