Laggards, leaders face digital transformation challenges
No one can relax in digital business: Those trailing behind must conquer the basics to get on the innovation path, while successful firms must endeavor to stay there.
The disparity between digital transformation leaders and laggards stems from a complex web of overlapping factors -- which often speak more to organizational issues than technical difficulties.
Considerations in play include corporate history, IT philosophy, the ability to deliver on customer experience and a product vs. project mindset. A particularly important element separating a successful digital business from its competitors is a knack for translating small successes into enterprise-wide benefits. Indeed, overcoming digital transformation challenges at scale is crucial for realizing the promise of technology-infused business models, according to CIOs and industry analysts.
Companies playing catch-up in the digital race must first focus on the essentials, such as customer experience, before moving on to more innovative pursuits. Leaders, to maintain their current advantage, must push on with innovation, partnering with the business side to roll out new digital products and services.
Every business, regardless of where it exists on the digital leader-laggard spectrum, has something at stake. Enterprises trailing behind could begin to founder on stalled revenue growth. And current leaders risk becoming tomorrow's followers if they fail to build on their momentum.
Patrick Forth, managing director and senior partner for Sydney, Boston Consulting Group, sees differing challenges for legacy incumbents lagging the field, digital incumbents that have made strides toward transformation and digital natives.
"If you're a legacy incumbent, it is time to really lean into this," he said, citing the risk from falling farther behind and becoming uncompetitive. "If you are a digital incumbent, you have done the first lap and there's lots of laps to go."
As for digital natives, Forth said, "Just because you are born digital, you don't get to stay digital." Businesses in this category must work to maintain their status, staying on top of developments from AI to the expanding metaverse.
Barriers: Historical and philosophical
A company's history helps shape its digital transformation journey -- sometimes for the worse. Businesses in the telecommunications industry, for example, may need to overcome decades of investment in fixed-line services that harken back to a less competitive age. Legacy business models, geared to the mass market and never designed for flexibility, offer a difficult place from which to launch a transformation initiative, Forth noted.
"That doesn't mean that telcos can't win," he said. "It just raises the bar and makes it a little harder to configure for success."
The way an IT department views its mission vis-a-vis the broader enterprise also influences its digital destiny.
"Leaders are playing a different game than the laggards -- they are not even in the same stadium," said Matthew Mead, CTO at SPR, a technology modernization firm in Chicago. "There's a very fundamental difference in what they think their roles are and the value they provide to the business."
SPR's research found that lagging IT organizations focus on implementing technology, while leaders emphasize expanding business opportunities and revenue streams. "Leaders believe their job is to be a partner to the business," Mead noted. "Laggards believe their job is to provide a utility. It's a massive difference."
Another transformation obstacle: sticking with a traditional project management philosophy. Project management thinking focuses on waterfall development methods, meeting strict specifications and achieving delivery milestones. IT departments following this path could find themselves out of step with enterprises focusing on the customer journey and looking for faster time to value.
JPMorgan Chase is taking the product path.
"Chase recently went through an agile transformation that restructured our internal teams to be product focused, rather than project focused," said Gill Haus, CIO for Consumer and Community Banking at Chase.
Teams now start with the customer and work back from there, delivering products with the right data and in the design that works best for customers, Haus said. The objective: build a superior app experience.
The company's agile transformation lets Chase product teams make decisions that speed up the delivery of new or enhanced app features for customers. Digital leaders that want to stay on top must ensure customer experience stands out as the No. 1 priority, Haus noted. Laggards, on the other hand, should focus on creating an organizational structure that prioritizes the customer journey.
"The customer journey is going to be the most important thing when it comes to being viewed as a leader or a laggard," he said. "If a customer isn't pleased with your tech and how they experience your tech, your teams won't be viewed as capable, digital leaders."
Digital transformation at scale
Digital leadership also revolves around the ability to scale. Localized transformation efforts will struggle to provide groundbreaking productivity, customer experience and innovation benefits.
"If you are a big company and have a genuine innovation only in one part, that may not move the needle," BCG's Forth said.
Limited transformation is an issue in the industrial sector, where history and organizational structure can hinder enterprise-wide adoption. "A number of companies have had some successful pilots, yet haven't scaled them across the whole company," said Chris Nardecchia, CIO at Rockwell Automation, an industrial automation company based in Milwaukee.
Patrick ForthManaging director and senior partner for Sydney, Boston Consulting Group
The highly distributed nature of industrials keeps many stuck in pilot mode. Digital initiatives often happen at the plant- or production-line level, where managers maintain a high degree of autonomy, Nardecchia said. But that localized span of control means that digital wins don't gain wider visibility.
Top-down corporate efforts, meanwhile, face a different problem: They enjoy a wider-angle view, but could encounter local resistance. Plant managers are wary of any proposed changes they believe could jeopardize their ability to ship product, Nardecchia said.
CIOs must strike a balance: Provide a pathway to scale without impinging on local independence and the need for stability. Nardecchia describes his approach as pursuing consistency across deployments while also accommodating local variations at the plant level -- and working with managers to implement digital initiatives with minimal disruption.
"Generally, we want a standardized deployment model and technology where it is applicable," he said. "The plant-level contribution helps identify where the centralized solution needs a slight variant. The local plant individuals are closest to the action and many times have the best ideas to innovate or know what will and will not work."
The local perspective can also shape "standardized patterns" that a company can reuse in similar plants, Nardecchia said.
While cooperation with local groups is critical, the overarching digital transformation initiative should be anchored at the enterprise tier to scale a successful deployment, industry executives noted.
Vipin Gopal, chief data and analytics officer at pharmaceutical firm Eli Lilly, emphasized the need to facilitate digital initiatives at a high level. Gopal's enterprise organization coordinates the company's AI efforts, supporting Eli Lilly's research, clinical and commercial operations.
"The benefit of having an enterprise organization is that we can take the learnings and investments we've made in one part of the organization and rapidly use them for a different part of the organization," said Gopal, who spoke at the MIT Sloan CIO Symposium. "That is important when it comes to scale in an organization like ours."
For example, Eli Lilly has created a central natural language processing platform, which helps the company avoid duplication of effort across its operations. The Indianapolis-based company employs more than 36,000 people worldwide, conducts clinical research in more than 55 countries and runs manufacturing plants in seven countries.
Advice for laggards, leaders and natives
The state of digital adoption varies from company to company and so too does the advice for moving ahead -- or preventing a backslide.
The priority for laggards is to get their first digital transformation done and dusted. Convincing C-level executives to get behind the initial effort can prove difficult, however, given the historical 70% failure rate of such programs. "They hate taking on those odds," BCG's Forth said.
Businesses in this category can boost their chances if they create a foundation for digital transformation success. That base includes an integrated strategy, leadership commitment, access to high-quality talent, an agile governance mindset, clear metrics and a modern technology architecture, according to BCG.
Laggards can also rally around initiatives that yield confidence-boosting results, such as an improved net promoter score, Forth noted. The idea is to focus on critical issues within core business functions.
While laggards focus on getting the basics right, companies that have made progress with digital transformation can begin to innovate. That's the case in telecom, where some companies are breaking away from the pack. Forth said perhaps 20% of the companies in that sector are building digital capabilities -- 5G services and high-growth cloud offerings, for example -- and are reaping the benefits of revenue growth and improved customer experience.
"You can see them starting to pivot their agenda toward growth and innovation," he added.
Maintaining digital leadership, however, goes back to organizational structure. "Technology teams being siloed in different departments are a thing of the past," Chase's Haus said. "Digital leaders are keeping their edge by pursuing initiatives that emphasize cross-team collaboration."
The customer is the organizational principle. Chase focuses its teams on a specific product, or component, that addresses an aspect of the customer journey -- a mobile app feature, for instance. That way, technologists are better able to innovate together and feel closer to the customer experience, Haus noted.
Digital natives, meanwhile, need to stay ready to absorb the next waves of transformation. Paul Daugherty, group chief executive for technology and CTO at Accenture, pointed to Web 3.0 and the metaverse as developments that could potentially level the playing field.
"We are entering a new stage of digital transformation and what is ahead is far more profound than what came before," he said, speaking at Accenture's annual Technology Vision event. "The digital leaders of today are not necessarily the ones positioned for leadership in this new world going forward, because it is so different."
Daugherty said businesses in the Web 2.0 era wrapped a digital capability around their core operations. With Web 3.0, the emphasis shifts to digital inside and a rethinking of the core foundations of what organizations can do with digital technology, he noted. The metaverse aspect of Web 3.0 will reshape every part of every business.
"Everyone, the leaders, the laggards, or if you are in between, needs to understand the moves and how to respond to them," Daugherty said.