DIGITAL TRANSFORMATION LEADERS DELIVER HIGHER PROFITABILITY; COMPREHENSIVE AND SYSTEMATIC ORCHESTRATION IS ESSENTIAL TO DRIVING FULL POTENTIAL DIGITAL ACCELERATION
Great digital orchestration requires a coordinated effort at all levels of the corporation—alignment at the top, agility in the middle and mobilization at the front line and is necessary to take a digital transformation to scale
New York – Jan. 22, 2018 – A surprising number of leadership teams are tentative about investing in digital technologies and capabilities, and it’s not hard to see why. While the payoff from digital transformation can be incredibly high, the success rate so far is regrettably low. Yet, a sizeable prize awaits companies that can successfully choreograph their digital transformation.
New Bain & Company research, Orchestrating a Successful Digital Transformation, includes results from a survey of more than 1,000 companies about their digital readiness. After comparing financial results for five categories of companies based on their degree of digital maturity, Bain found that revenues for the digital leaders grew 14 percent over the past three years, more than doubling the performance of the digital laggards in their industries. Profitability followed a similar pattern—83 percent of the leaders increased margins over that period while less than half of the industry laggards did so.
Capturing those gains is another story. Bain’s data shows that digital transformations are significantly harder than conventional change management programs. According to the survey, just 5 percent of those companies involved in digital transformation efforts reported that they had achieved or exceeded the expectations they had set for themselves (vs. a success rate of 12 percent for conventional transformations). A full 71 percent of these companies settled for dilution of value and mediocre performance.
“A strong majority of companies in every industry we surveyed told us that digital investment is among their top priorities,” said Laurent-Pierre Baculard, who leads Bain’s Digital Practice in Europe, the Middle East and Africa. “Yet, anecdotal evidence suggests that a great many executives are skeptical that they can translate the buzz around digital into meaningful improvements in performance.”
According to Bain, the complexity of upgrading technology to increase a company’s speed and learning at scale hampers digital transformation efforts. Even if some traditional companies are accustomed to innovating in the product development realm, few are adept at rapidly deploying digital technologies to solve problems and boost performance across the organization. Additionally, too many focus on what Bain calls the “outer game” of digital investment – “Should we work on customer engagement or the supply chain?” They put less emphasis on the “inner game” – “Do we know how to choose the right investments, test them in real time and scale them for maximum impact?”
Among the five categories of companies in Bain’s research, the most digitally advanced achieved the best balance between the inner and outer games. True digital leaders link a bold strategic ambition to the specific inner game capabilities and behaviors that they will need to achieve it.
Admittedly, this is a recipe for ripping everything up all at once.
“Digital transformation involves change at every level of the organization. But careful and deliberate orchestration makes the problem manageable,” said Baculard. “These interconnected companies learn to break big ideas down into well-defined waves of practical, achievable stepping-stones that offer steady, incremental progress. Collectively these waves of innovation build to sustained levels of superior performance over time.”
Great orchestration boils down to a system that identifies the ideas with the most potential to have enterprise-wide impact and then rallies the organization around them, top to bottom. This includes:
Alignment at the top: Any discussion of strategy begins with making sure that everybody is on the same page. So it’s no surprise that survey respondents cited executive alignment as the No. 1 factor in successfully executing a digital transformation. The right kind of alignment confronts a fundamental challenge—the best ideas for game-changing initiatives most often come from deep within the organization, but their success depends on the ability of top executives to spot them, elevate them and support them with the right kind of investment. This typically requires critical changes to corporate behaviors.
Agility at the middle: As important as alignment is at the top, the actual work of developing and scaling digital initiatives takes place in the middle of the organization. Great orchestrators assign initiatives to cross-functional teams that use Agile development processes to test prototypes with customers, learn from real-market experience and adapt as necessary in a rapid cycle of continuous improvement and scaling.
Mobilization at the front line: Perhaps the surest way to upend this virtuous cycle of digital innovation is to underinvest in mobilizing the front line. Survey respondents cited this as the biggest potential threat to a successful digital transformation. The typical change initiative gets cooked up at the executive level and pushed down to an often reluctant organization. Successful orchestration, on the other hand, recruits important people on the front line to play a leadership role in developing and executing the digital agenda.
Editor's note: To arrange an interview, contact Dan Pinkney at email@example.com or +1 646 562 8102
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About Bain & Company, Inc.
Bain & Company is the management consulting firm that the world's business leaders come to when they want results. Bain advises clients on strategy, operations, information technology, organization, private equity, digital transformation and strategy, and mergers and acquisition, developing practical insights that clients act on and transferring skills that make change stick. The firm aligns its incentives with clients by linking its fees to their results. Bain clients have outperformed the stock market 4 to 1. Founded in 1973, Bain has 57 offices in 36 countries, and its deep expertise and client roster cross every industry and economic sector. For more information visit: www.bain.com. Follow us on Twitter @BainAlerts.