Incumbent enterprises -- long-established firms facing the assault of digital upstarts -- are breaking into two groups, and CIOs could play a pivotal role in shaping their trajectories.
New research from Boston Consulting Group (BCG) points to the emergence of "digital incumbents" -- companies that have successfully completed the first lap of digital transformation. Such organizations find themselves in a position to innovate and join the ranks of the digital leaders.
The management consulting firm reckons that 30% of the companies in the S&P Global 1200 index are making the transition to digital incumbent status. That leaves the mass of enterprises that have yet to complete a significant digital transformation facing the risk of becoming uncompetitive. BCG terms such companies "legacy incumbents."
"Legacy incumbents are struggling to deliver a successful digital transformation and are, frankly, falling behind," said Patrick Forth, a managing director and senior partner with BCG's Sydney office. He co-authored BCG's report on the rise of the digital incumbent.
Other consultancies have also identified a gap between digital leaders and laggards, a disparity that has only grown larger amid the COVID-19 pandemic.
A 2021 Accenture study reported the digital front runners growing at five times the pace of the backmarkers. A Deloitte survey, meanwhile, found that companies with higher digital maturity were twice as likely as their lower-maturity rivals to report margin and revenue growth above the industry average.
Double down on digital transformation
Digital incumbents can pursue a couple of agendas to maintain and extend their advantage over legacy businesses, Forth said. For one, businesses that have successfully launched a digital transformation journey should finish what they started, he noted. An initially successful cloud migration, for example, might stall before an organization can obtain the highest possible value in transferring workloads.
"Make sure you get as many transactions and as much use and adoption as possible," Forth said.
Patrick ForthManaging director and senior partner, Boston Consulting Group
Forth also recommended digital incumbents pursue open APIs and open-architecture technology. Telecom companies and banks could open some of their technology to let external developers add to their ecosystems -- third-party payment apps, for instance.
Another agenda item: Decide where to focus on innovation. A bank could look to innovate within its main business -- a novel approach for managing mortgage applications -- or cultivate an entirely new service. As for the latter, Forth said BCG is helping one bank customer build a business to help SMB customers understand their carbon footprint.
Legacy incumbents, for their part, must first focus on delivering a successful digital transformation initiative. That's easier said than done given the complexity of transformation and a 70% failure rate, Forth said. Enterprises, however, can flip the odds in their favor. The key to the first phase of transformation is building initial capabilities that address critical issues, such as better engagement with customers and operational efficiency. Getting a few runs on the board helps an organization feel more confident, he added.
The CIO's role
CIOs, wherever their companies exist on the maturity spectrum, will influence the shift to digital incumbency. "The CIO role is to play a huge part delivering this," Forth said.
One role is to make sure an enterprise's entire leadership team is on board with digital transformation, from the early phases to subsequent innovations. Without widespread buy-in, the CIO ends up selling a difficult venture to wary colleagues on their own.
"The CIO needs to help create that environment in which the transformation is owned by the top table," Forth explained.
In Forth's view, CIOs should also keep an eye on "business value realization assurance" as well as delivery assurance. "There are many examples where delivery is 100% and value realization is minimal," he said. "The two sides aren't joined up."