Digital business transformation is not easy or inexpensive, but the benefits are significant.
Scientists from the MIT Center for Information Systems Research found companies that have executed a digital transformation have significantly higher financial performance — with average revenue growth of 17.3 percentage points and net margins of 14.0 percentage points above industry averages.
Yet a study of 1,311 global firms found only 22% are what CISR researchers call “future ready” — that is, having gone through business transformation that allows them to leverage digital capabilities to innovate, engage, and satisfy customers while reducing costs.
In the following excerpt from “Future Ready: The Four Pathways to Capturing Digital Value” (Harvard Business Review Press: October, 2022), the authors explore the two goals of digital transformation and recommend five steps to becoming future ready.
Transforming a firm to succeed in the digital economy requires a vision and a playbook to help firm leaders deliver on that vision, motivate employees, communicate with markets, and keep everyone focused on a common goal as they work to create new value in an increasingly digital world. The framework that we have developed starts with describing what it means to become a future-ready firm.
We define a firm undergoing a digitally enabled business transformation as having two simultaneous goals: (1) using digital technologies and practices to speed up and (2) wring out costs by standardizing and automating processes; reusing data, processes, and technology; and identifying areas where productivity can be increased.
A study of 1,311 global firms found only 22% are what CISR researchers call “future ready.”
At the same time, these firms are using digital technologies and practices to innovate, creating new offers and services, identifying new ways to engage customers, and developing new business models and revenue streams. Some of the digital technologies and practices will provide efficiency gains and opportunities for innovation — for instance, service enabling a core capability with application programming interfaces (APIs) standardizes and automates that capability, which can then be reused AND can potentially be bundled into a new product offering for customers.
We name firms that have learned to both improve customer experience and be more efficient, simultaneously and consistently, as future ready. Future-ready firms consider and use digital tools and approaches early in their decision-making to address any challenge or opportunity, large or small. These digital tools and approaches include building and reusing platforms, test-and-learn techniques, agile methods, partnering to grow through digital connections, dashboards to accumulate and measure value, and many others. These future-ready firms are top performers, reporting estimated average revenue growth of 17.3 percentage points and a net margin of 14 percentage points above their industry average — a rewarding premium.
We developed this playbook based on more than five years of rigorous research, including more than 50 interviews with executives, several surveys with a total of over 2,000 respondents, and field-tested in multiple workshops with senior management teams and boards in firms across the world in diverse industries, plus many presentations and masterclasses.
This is the journey we recommend for leaders as they position their firms to become future ready and top performers in the digital economy:
Motivate: Articulate your firm’s purpose to your employees, managers, directors, and partners, and align it with the transformation to future ready. Digital business transformation is challenging for the entire firm and a strong purpose provides meaning to everyone on the journey.
Commit: Chose a pathway, or progress on multiple pathways if your strategy dictates it. Communicate the pathway(s) and create a common language that everyone in the firm understands and uses to describe the journey.
Anticipate: Look ahead to the common challenges — we call them organizational explosions— that occur in all digital business transformations and manage them.
Build: Develop the 10 capabilities future-ready firms have in common that help create value.
Accumulate: Create, capture, and track three types of value — from operations, customers, and ecosystems — over time.
Excerpted from "Future Ready: The Four Pathways to Capturing Digital Value" by Stephanie L. Woerner, Peter Weill, and Ina M. Sebastian. Copyright 2022 Stephanie L. Woerner, Peter Weill, Ina M. Sebastian. Reprinted by permission of Harvard Business Review Press. All rights reserved.