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For businesses that lack digital maturity, getting onto the path to growth -- and potentially survival -- requires an extensive overhaul of their IT.
The gap between digital innovators and digital laggards has steadily expanded during the COVID-19 pandemic, and the benefits of digital transformation and innovation have become more pronounced. An Accenture study published earlier this month stated digital leaders now grow five times the pace of laggards, compared with two times prior to the pandemic. Deloitte's digital transformation executive survey, meanwhile, revealed that "higher-maturity companies" were about twice as likely as their lower-maturity counterparts to report net profit margins and annual revenue growth rates above the average for their industries.
Professional services and consulting executives believe organizations that trail digital transformation leaders can catch up if they act quickly.
Strength through replatforming
Companies can begin to catch up by pursuing what Accenture called "systems strength." Systems strength takes into account a company's technology adoption, application of technology at scale across business processes, and organizational and cultural readiness for technology-enabled innovation, according to Accenture. To achieve systems strength, companies must harness the cloud to replatform.
"Overall, for those just starting their digital transformation journey, replatforming to build systems strength is the first step," said Annette Rippert, group chief executive of strategy and consulting at Accenture and co-author of the company's "Make the Leap, Take the Lead" report. Accenture last year unveiled plans to invest $3 billion in a new cloud business.
Cloud adoption is a component of IT modernization, another step toward digital business.
"There is no question that core modernization is table stakes," said Rich Nanda, principal at Deloitte Consulting and co-author of the company's digital maturity study, "Putting digital at the heart of strategy." He characterized the IT modernization phase as retiring legacy applications or moving them to the cloud.
Cloud adoption, however, comes with potential pitfalls, which consultants can help customers avoid. "There are organizations that move workloads and storage to cloud providers without a plan for governance, security or cost controls," said Grant Duxbury, director, pre-sales engineering at Aptum, a hybrid, multi-cloud MSP based in Toronto. "When things get out of control and escalate, this can cause an IT team to consider bringing their workloads back on premises."
The return to on premises is a trend Aptum increasingly encounters, Duxbury said. Although organizations will view a reverse cloud migration as the way to go, a hybrid strategy can accommodate the characteristics of varied workloads and optimizes cloud cost and performance, he added.
Modernization creates the basis for digital innovation, but the modernization and digital innovation stages tend to overlap, rather than occur sequentially.
Nanda cautioned companies against putting off innovation until they have completed core modernization. "Don't wait for it to be over," he said, noting that organizations should start doing more cloud-native development and thinking about AI while continuing to modernize.
"In general, innovation doesn't come at the expense of modernization -- they go hand-in-hand," Rippert said.
Modernized IT is a characteristic of organizations the Accenture survey identified as "leapfroggers" -- businesses that used their system's strength to grow at four times the rate of laggards. "The leapfroggers are modernizing their IT systems by speeding up software development cycles, updating business processes and building new capabilities," Rippert said.
Annette RippertGroup chief executive of strategy and consulting, Accenture
Modernized operations generate cost savings, which becomes a key factor in devoting more IT budget to innovation, she noted. According to Accenture, leapfroggers succeeded in flipping their IT budget allocation to emphasize innovation over maintenance and operations. Typically, maintenance and operations command 70% of a budget, with 30% dedicated to innovation.
The Accenture study found leapfroggers prioritized the scaling of innovation across their organizations. This focus, in turn, led to significant revenue growth, which allowed leapfroggers to "quickly make up lost ground," Rippert noted.
As digital leapfroggers and leaders prepare for expected post-pandemic economic growth, they will use technology "to create pervasive change in an organization," Rippert said. Such companies will target a new set of business priorities such as sustainability, data privacy and employee experience, she added.
Rippert said she expects "a renewed focus on upskilling and supporting employees" will emerge as a trend. The Accenture survey, she noted, showed leaders use technology to upskill their employees at more than twice the rate of digital laggards.
Ellen Daley, senior vice president at Acorio, a ServiceNow consultancy and an NTT Data company, said she believes organizations will emphasize three kinds of IT projects: core business strategy efforts that help them adapt to a changing world, projects geared to improving business efficiency, and transformation projects that support people. The latter includes return-to-work and customer experience initiatives, she said.
Nanda said he anticipates a general transition from modernization to innovation. Rather than using technology to enable back-office operations, organizations will deploy technology to grow revenue, earnings and market share. "I often say we're shifting from a focus on enable tech to growth tech," he noted.
Spending on modernization will continue, however. "The spend on core modernization isn't going away any time soon," Nanda said. "There is so much legacy technology that still has to be upgraded."