Get a holistic digital transformation strategy or get left behind

At IDC Directions 2019, IDC's Meredith Whalen said digital transformation at the project level is a recipe for failure. Companies need a more holistic approach that puts culture first.

BOSTON -- The enterprise is rapidly changing and companies need a digital transformation strategy to stay in the game.

That's what IDC senior vice president and chief research officer, Meredith Whalen, told audience members attending IDC Directions 2019, a technology conference aimed at IT suppliers.

Organizations are going to need a digital transformation strategy to keep pace with the changes, Whalen said, particularly with the growing presence of "unicorns" around the world, which she described as privately held companies valued at $1 billion or higher. Traditional organizations are particularly vulnerable to newer, more innovative competitors that don't have the burden of maintaining legacy systems.

"There are thousands of these disrupters across dozens of industries, and [traditional organizations] need to go through digital transformation before it's too late," Whalen said.

Digital transformation gets real

However, the reinvention of traditional organizations has started and a digital transformation strategy that integrates new technologies to create new business models is developing.

Meredith Whalen, IDC senior vice president at IDC Directions 2019.Meredith Whalen

To illustrate this, Whalen said that by the end of this year, 30% of Global 2000 manufacturers will enter the product-as-a-service business; by 2021, 55% of utilities will derive at least 20% of gross revenue from distributed generation and storage packages; by 2023, 50% of cities will use crowdsourcing for establishing budgets and neighborhood decision-making; and by 2024, 25% of airlines will use blockchain for identity and payments.

"These industries will reshape and redefine themselves and then they configure with other industries to create new digital economies," Whalen explained.

For example, auto manufacturers need to develop a digital transformation strategy not just around monetizing automobiles, but monetizing the passenger experience as well. She said this is only possible when auto manufacturers work with different industries, such as advertising, the entertainment industry, and transportation services, thereby creating a new economy.

Digitally determined vs. digitally distraught

However, as the new digitally transformed economy takes shape, Whalen predicted there would be a divide between the digital haves and have-nots. IDC estimated that 46% of organizations worldwide are "digitally determined," and have the right digital transformation strategy and processes for their organization.

Digitally determined organizations are rebooting their culture and recognizing that they have to change the way they work and how they're organized, Whalen said.

"They organize themselves around one single digital strategy, which means that they have one digital roadmap and tend to have or are moving to one technology footprint," she said. "They are also making the case to investors that digital has inherent value, so this is something that they should invest in long term."

The other 54% of organizations are "digitally distraught," which means they are in danger of being left behind in the digital economy. These organizations may want to undergo a digital transformation, and may even attempt to do so, Whalen said, but they haven't changed their culture yet and each functional area or line of business tends to have its own approach.

"It's really hard to make this transformation if everybody's moving in their own direction ... and there's a technology footprint for every one of the digital strategies as well," she said. "So you don't get the ability to scale so effectively."

Digitally distraught organizations often struggle to demonstrate that digital transformation is good for the company on the whole because they're working at a project level so they only demonstrate ROI project by project rather than see a cumulative effect.

A growing DX divide

Digital transformation strategy may pay off

The question most companies have is whether a digital transformation will actually pay off, as the investment is considerable. One IDC study provides evidence that digital transformation is doing just that for manufacturers, according to Whalen.

The report looked at the financials of digital manufacturers and nondigital manufacturers over a four-year period and found that revenue for digital manufacturers grew by 1.2% and profits grew by 2.3%. For nondigital manufacturers, revenue shrunk by 3.1% and profits shrunk by 2.1%.

Still, transforming the way a company operates at every level is not for the faint of heart. "Digital transformation is a business transformation and companies need to break it down and think about transforming culture, transforming the way you engage with customers, transforming the way you manage data and turn it into intelligence, transforming your operating model, and transforming the way you work with employees and the way work gets done," Whalen said.

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