Digital Transformation: a Roadmap for Billion-Dollar Organizations

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Digital Transformation: a Roadmap for Billion-Dollar Organizations MITSloan MANAGEMENT DIGITAL TRANSFORMATION: A ROADMAP FOR BILLION-DOLLAR ORGANIZATIONS FINDINGS FROM PHASE 1 OF THE DIGITAL TRANSFORMATION STUDY CONDUCTED BY THE MIT CENTER FOR DIGITAL BUSINESS AND CAPGEMINI CONSULTING Contents 2 © 2011 MIT Center for Digital Business and Capgemini Consulting 1 The Study 06 2 Common pressures; different results 08 • Common pressures to begin digital transformation • Different digital transformation speeds and different results Case Study: Finding new opportunities for digital transformation across a hospitality company Case Study: Digital transformation in India 3 The shape of digital transformation 16 • Transforming customer experience • Transforming operational processes • Transforming business models • Digital capabilities Case Study: Digital transformation in an international banking group Case Study: Moving from separate to integrated digital initiatives in an apparel manufacturer 4 Digital technology usage 28 5 Challenges on the road to transformation 34 • Initiation challenges • Execution challenges • Governance challenges Case Study: Evolving as a value chain orchestrator in mortgages Case Study: Digital transformation in an international airport 6 How can you make your digital journey successful? 46 • Envision the digital future for your firm • Invest in digital initiatives and skills • Lead the change from the top Case Study: Driving digital transformation across a global media company 7 What is digital transformation maturity? 58 • The What and the How • Digital Maturity Matrix • How to assess your digital maturity Case Study: Capitalizing on digital opportunities for a business directory 8 Conclusion 65 © 2011 MIT Center for Digital Business and Capgemini Consulting 3 EXECUTIVE SUMMARY 4 © 2011 MIT Center for Digital Business and Capgemini Consulting Digital transformation (DT) – the use of technology to radically that new technologies provide. Major digital improve performance or reach of enterprises – is becoming transformation initiatives are centered on re-envisioning a hot topic for companies across the globe. Executives in customer experience, operational processes and all industries are using digital advances such as analytics, business models. Companies are changing how mobility, social media and smart embedded devices – and functions work, redefining how functions interact, and improving their use of traditional technologies such as ERP even evolving the boundaries of the firm. – to change customer relationships, internal processes, and value propositions. Other executives, seeing how fast digital • Successful DT does not happen bottom up. It must be technology disrupted media industries in the past decade, driven from the top. know they need to pay attention to changes in their industries now. • Focus on the “how” more than the “what.” The most successful transformations we have seen focus as much How can senior executives successfully lead digital transformation? (or more) on how to drive change as on the detailed While many experts urge companies to get started on the digital content of the change. A compelling transformative transformation journey, few tell how to do it. In this report we vision, with related engagement, governance and KPIs share the findings from a global study of how 157 executives in will allow people throughout the enterprise to identify 50 large traditional companies are managing – and benefiting new “whats” to meet or extend the vision. from – digital transformation. We will describe the elements of successful digital transformation and show how to assess your • Successful DT comes not from creating a new firm’s digital maturity. organization, but from reshaping the organization to take advantage of valuable existing strategic assets in new Our research shows that, although large traditional firms ways. are truly different from digital entrants, many are starting to transform their businesses successfully through digital • Companies can do much more to gain value from technology. Specifically, investments they have already made, even as they envision radically new ways of working. • Companies face common pressures from customers, employees and competitors to begin or speed up their Despite the hype around innovative digital technologies, most digital transformation. However they are transforming at companies still have a long way to go in their digital transformation different paces with different results. journeys. Leadership is essential. Whether using new or traditional technologies, the key to digital transformation • Successful digital transformation comes not from is re-envisioning and driving change in how the company implementing new technologies but from transforming operates. That’s a management and people challenge, not just your organization to take advantage of the possibilities a technology one. © 2011 MIT Center for Digital Business and Capgemini Consulting 5 1 THE STUDY 6 © 2011 MIT Center for Digital Business and Capgemini Consulting Many popular stories of digital – and benefiting from – Digital transformation involve digital start- Transformation. We are working to ups or high-tech firms such as understand how digital technology is Amazon, Apple, or Google. Executives changing the business of large leading in traditional companies often find firms. these examples hollow. Big traditional companies, with decades of history Phase 1 of this multi-year study is an and legacy, are simply different from exploratory investigation involving these newer digital entrants. Other 157 executive-level interviews in stories focus on exciting initiatives 50 companies in 15 countries (see by traditional companies, but are Figure 1). These companies are large, anecdotal and do not show how those with typically $1 billion or more in companies implemented the change. annual sales. We conducted in-depth These examples may be good triggers interviews to qualitatively explore the for other companies to take action, but nature of the digital transformation they give no advice on how or whether phenomenon with real executives in to do so. real companies. To provide balanced perspectives, approximately half of With that in mind, MIT Center for the interviewees are business leaders Digital Business and Capgemini such as CEOs, line of business Consulting set out investigate the ways managers, marketing heads, or in which large traditional companies COOs, while the other half are IT and around the world are managing technology leaders. Figure 1: Interviews cover a broad range of countries and industries Transport Retail & Energy, Utilities Americas Food services and Chemical & Canada Telecom, Media, and 12% 30% Entertainment 6% Services 12% 20% 54% 22% 16% 8% 12% 8% Europe Asia Pacific Pharmaceuticals Manufacturing Government Financial & Medical & distribution Services © 2011 MIT Center for Digital Business and Capgemini Consulting 7 2 COMMON PRESSURES; DIFFERENT RESULTS 8 © 2011 MIT Center for Digital Business and Capgemini Consulting 2.1 Common pressures to Customers, too, are becoming more begin digital transformation demanding. An airport executive described an “ever-rising tide of The executives we interviewed customer expectations” for service and report feeling pressure to transform convenience. For a manufacturer/ from forces inside and outside the retailer, “People’s expectations have company. Figure 2 shows that most changed. They want to be more in charge. executives expressed at least moderate They expect that we know them more... pressure to change. Employees are their online behavior is developing asking why they cannot collaborate expectations and behaviors that they apply with coworkers the way they can in other contexts as well.” with friends. One executive quoted younger employees as saying “Come Nearly every executive (72 percent) on. I know the company’s more than cited competitive pressures to change. 100 years old, but our IT capabilities This relates closely to increases in the don’t have to match the age of the pace of business. Respondents rated company.” Other employees are the current pace of business relative Executives rated incorporating their personal practices to five years ago as 5.6 on a scale from into their work lives without waiting 1=very much slower to 7=very much the pace of business for corporate practices to catch up. faster. Most indicated the pace will compared to five According to one CIO, “Officially iPads continue to increase, leading to further are prohibited by our policies. Yet 50 pressure to transform their businesses. years ago as percent of our employees are using them While several executives indicated 5.6 out of 7* at work.” this was “the new normal” for their *Scale: 1=very much slower than 5 years ago, 7=very much faster than 5 years ago Figure 2: Pressures for change* High Medium 72% 70% M M 32% HH M H Customers Competitors Employees * Percentage of companies experiencing moderate or high pressure to transform from customers, competition, or employees as mentioned by their executives. Some firms mentioned more than one pressure. © 2011 MIT Center for Digital Business and Capgemini Consulting 9 industries, others expressed concern or other technology-enabled changes, that the acceleration would not be but obtained only basic levels of value sustainable. from the investments. They can obtain much more value by continuing the Executives on average rated their effort – envisioning new capabilities and innovation culture at only 4.2 on a process changes to reap larger returns 7-point scale. Although
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